Opportunities for Investors


Mozambique has experienced consistent growth over the past two decades and -is one of Africa’s five fastest growing countries, with GDP growth expected to remain at 7-9% per annum over […]

Mozambique has experienced consistent growth over the past two decades and -is one of Africa’s five fastest growing countries, with GDP growth expected to remain at 7-9% per annum over the next 5 years.

Over the past 4-5 years Mozambique has recorded a 506% compounded annual growth in FDI to more than $6 billion in 2013. While gas and coal are spearheading FDI inflows, in reality both sectors are largely in the construction or early operational phase involving many inputs from companies in infrastructure, manufacturing, logistics and transport, commerce and service sectors. And while market opportunities are multiplying for investors in these sectors, they require local presence, and a deep understanding of the challenges and risks involved.

Domestic and Development-Financed Investment is also flowing to sectors of above average growth, particularly in construction & civil works (11.3%) and transport & communications (11.2%). The banking sector is the most profitable in Southern and Eastern Africa, averaging a 27.4% return on equity over the past five years.

The investment outlook is expected to improve still further thanks to increased global prices of commodities that have hitherto held some decisions back, as well as the start of gas production in the northern fields of the Rovuma basin, expected in 2019.

New oil and gas regulatory framework

The new oil and gas law in force since August 18th 2014, establishes that companies must be registered in Mozambique (through a subsidiary or branch) in order to qualify for an exploration license or an interest under an exploration and Production Concession Contract (EPCC).

The Petroleum Law also stipulates the:

•Mandatory partnership with the national petroleum company—ENH—in all petroleum operations;

•Mandatory registration of oil and gas companies on the Mozambique Stock Exchange;

•Allocation of 25% of oil and gas to the Mozambican market;

•Rules on the compensation and re-location of local communities in the concession areas;

•Rules for hiring, training and inclusion of Mozambican employees in the management positions.

On the other hand, the Private Public Partnership (PPP) Law, which regulation was approved in July 4 2012, new EPCCs have to be consistent with the PPP Law. The PPP law provides:

• Term of contracts: up to 30 years

•Assignment: any party to a concession contract in order to cede its contractual position (partially or in its entirety) has to request written pre-approval from the Mozambican State

•Local participation is required (either of Mozambican individuals or companies): 5% to 20% of the shares via a listing on the local stock market. EPCCs executed before entry into force of the PPP Law are not obliged to comply with this. However, the government reserves the right not to renew an EPCC, if the partners in the project have not included Mozambican participation.

•The operator is required to provide benefits (training, resettlement, environmental, social responsibility) and a minimum financial return/ benefit not lower than 35% of the annual profit for the government (this includes corporate income tax due, at 32% of profit).

•Signature bonus is to be between 0.5% and 5% of the value of the assets. This implies that there will be signature bonuses for future EPCCs (though how the value of new licenses will be determined is not clear).

•Concession fixed fees between 2% and 5% of the fair value of assets. Again, it is unclear how these are to be determined in the case of an EPCC.

•“Extraordinary benefits“ arising from a sale of an EPCC should be shared with the State. It is not clear whether this means via taxes or some additional mechanism.

Despite the use of the term “concession“ to describe the arrangements entered into with oil and gas companies, the Mozambique fiscal regime for upstream projects is based on a production sharing mechanism with income and other taxes. In addition to the state’s share of production the other elements of fiscal take are:

• Bonuses;

•Petroleum production tax (“PPT“ analogous to royalty);

• Income tax;

• Customs duties, VAT, payroll taxes, etc.

In addition to general taxes, production bonuses are specified in the EPCC model, which are due on commencement of commercial production and when various levels of production are achieved.

The Specific Taxation Regime for Petroleum Operations approved by Law 27/2014 of 23 September establishes that PPT is due (in cash or in kind) when petroleum is produced and delivered to the local entity defined by the government. This is a liability of the Operator to be discharged before the calculation of production sharing. The current rate of PPT is 10% for crude oil and 6% for gas.

In an effort to kick-start investment in the upstream sector significant tax incentives were offered by the government up to 2007. The current tax regime applicable to oil and gas has restricted tax incentives.

Penal Code

Under the newly approved Penal Code the sale of land in Mozambique is typified as a crime that can lead to a prison term.

Tax System 2015

Corporate Taxation

Residence — A company is resident if its head office or place of effective management or control is in Mozambique, or if the business is registered in Mozambique.

Basis — A resident company is taxed on its worldwide income. A non-resident company is subject to tax only on its Mozambique-source income.

Taxable income — All income and gains are included in taxable income. Expenses considered indispensable in the generation of income or gains subject to tax are deductible.

Gains resulting from a direct or indirect transfer between non-residents of capital shares or other interests and participatory rights involving assets located in Mozambique are deemed to be obtained in Mozambique (i.e. as Mozambique-source income), regardless of where the sale takes place and whether the transfer is gratuitous, or for consideration.

Interest payments and other forms of remuneration on loans granted by shareholders to the company are not deductible tax costs to the extent they exceed MAIBOR (12 months), plus 2%.

Mining and oil and gas companies and holders of mineral and oil rights granted under the law of mines and oil must assess taxable income and maintain related accounting records separately, which means that each mining title and concession agreement must have a specific/individual tax registration number.

Taxation of dividends — Dividends are subject to a 20% withholding tax (10% for shares listed on the Mozambique stock exchange) unless they qualify for the participation exemption (see below). Foreign-source dividends are taxable at the company tax rate.

Capital gains — Capital gains or losses are included in ordinary income and taxed at the company rate. Capital gains derived from the sale of shares of a resident company by a non-resident without a permanent establishment in Mozambique are fully taxed at 32%.

Losses — Tax losses may be carried forward for five years. The carryback of losses is not permitted.

Losses incurred by a mining or oil company in a particular mine or area of concession agreement may not be offset by gains derived in another mine, or area.

Rate — The standard company or branch tax rate is 32%, although a penalty rate of 35% may be charged on unsubstantiated payments.

Surtax — No

Alternative minimum tax — An AMT applies to very small entities (i.e. those with turnover less than MT 2,500,000, or approximately $80,000).

Foreign tax credi — A tax credit is available for foreign taxes paid. Mozambique applies the ordinary foreign tax credit as a unilateral method for the avoidance of double taxation of income obtained abroad by resident companies and permanent establishments of nonresident companies. Unused credits may be carried forward for up to five years.

Participation exemption — No withholding tax is levied on dividends paid to a Mozambique company that has held 20% or more of the shares in an associated company in Mozambique for at least two years.

Holding company regime — No

Incentives — Incentives, including tax credits and the reduction or exemption of corporate tax, are available under the Fiscal Benefits Code. Companies that invest in Rapid Development Zones and Industrial Free Zones, in agriculture, mining, oil, tourism and industrial and services projects also may benefit from incentives that vary by location, the number of employees and whether the products are exported.

Withholding Tax

Dividends — Dividends paid to residents and nonresidents are subject to a 20% withholding tax (10% for shares listed on the Mozambique stock exchange) unless (for non-residents) the rate is reduced under a tax treaty.

Interest — Interest paid to residents and non-residents is subject to a 20% withholding tax unless (for non-residents) the rate is reduced under a tax treaty. A 0% rate applies to interest paid to a registered Mozambique financial institution. Interest on treasury bonds and debt securities listed on the stock exchange and interest for liquidity swaps between banks, with or without collateral, is taxed at 20%.

Royalties — Royalties paid to residents and non-residents are subject to a 20% withholding tax unless (for non-residents) the rate is reduced under a tax treaty.

Technical service fees — Technical service fees paid to a non-resident are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.

Branch Remittance Tax — No

Other — Payments made to non-residents for the following services are subject to a 10% withholding tax: (1) telecommunications services, international transport services and the assembly and installation of telecommunications equipment; (2) services related to construction and rehabilitation of productive infrastructures, transport and distribution of electricity in rural areas, under the scope of public projects of rural electrification; (3) services from charters of marine vessels to conduct fishing and cabotage activities; and (4) services relating to the maintenance of freight aircraft.

Other Taxes On Corporations

Real property tax — An annual municipal tax is assessed at up to 0.4% (for a residence) and 0.7% (for offices) of the value of urban property.

Social security — The employer pays 4% of staff emoluments, with no upper limit.

Stamp duty — Stamp duty at 0.4% applies to share transfers and 0.2% applies to transfers of buildings. Land transfers (which are always leaseholds) are exempt from stamp duty.

Transfer ta — A transfer tax of 2%, normally paid by the transferee, is charged on the transfer of title to a building. The rate is 10% when the buyer is resident in a jurisdiction with a more beneficial tax regime.

Mining Taxes

Rent Tax (“Imposto sobre a Renda de Recurso Mineiro Rendimento“—IRRM — As of January 1st 2015 there is a direct tax on the net cash flow of a mining project, from the moment in which these developments exceed a rate of return of 18%, before taxes. The tax is due by mineral titleholders and is applicable to mining projects that have accrued net revenues (cash gains) during a fiscal year.

Surface Tax — Surface tax is calculated on the basis of the number of hectares of the area under license, or by mining title in the case of mineral water.

Mining Production Tax — The tax rates vary from 1.5 to 8% depending on the mineral and the tax is applied on the value of the product extracted.

Petroleum Taxes

Petroleum Production Tax — As of January 1, 2015 a taxable transaction occurs when oil and/or gas is extracted in Mozambican territory. The applicable rates are 10% for crude oil and 6% for natural gas based on the value of such petroleum. There is a reduction of 50% of this tax when the production of oil and gas is destined for use by local industry.

The Oil and Gas Law also provides for special rules on the taxation of revenue.

Other — An economic activity tax is charged on businesses in municipal areas, but the costs vary according to location, type and size of business, and is not significant.

Anti-Avoidance Rules

Transfer pricing — The arm’s length principle applies to transactions between related parties. For payments to companies in low tax jurisdictions, the authorities will need to be satisfied that the payment was genuine and reasonable. A special relationship is deemed to exist between two entities when one has the power to directly or indirectly exercise significant influence on the management decisions of another.

Thin capitalization — The deduction of intercompany interest may be limited where the indebtedness to a nonresident related party is more than twice the equity. The same debt equity ratio is applied for mining and oil companies regardless of whether the parties are related and if the indebtedness is with a non-resident, or not.

Disclosure requirements — Banks are required to report any suspicion of money laundering activities.

Administration And Compliance

Tax year — The tax year is the calendar year. A tax period other than the calendar year will be allowed only when an entity is more than 50% owned by an entity that has adopted a different tax period.

Consolidated returns — Consolidated returns are not permitted; each company in a group must file a separate return for tax purposes.

The tax and accounting returns of companies that are holders of mineral and oil rights granted under the law of mines and oil (namely, annual income returns, tax and accounting information return, registration and amendment or cancellation of taxpayer registration) must be completed separately for each mining title or concession agreement.

Filing requirements — Companies must make three provisional payments of corporate tax in May, July and September. The total amount of the payment should be 80% of the result of the tax assessed less the amount of tax withheld by third parties in the previous year. Other special provisional corporate tax payments may be due in June, August and October if the result of the following formula is positive: 0.5% x turnover (with a minimum limit of MT 30,000 and a maximum limit of MT 100,000), less the provisional payment made in the previous year.

The annual tax return and the balance of tax due must be submitted by 31 May, with supporting documents filed by the end of June.

Penalties — There are penalties for late filing, nonpayment of tax and failure to disclose records. Penalties range from approximately $100 to $33,000. Interest is charged on late payments. Prison terms for tax fraud may be up to eight years and up to two years for negligence.

Rulings — General rulings on the interpretation of the tax law, or advance rulings on the taxation of specific transactions may be obtained from the tax authorities. The rulings are binding on the authorities with respect to the disclosed facts of the transaction.

Personal Taxation

Basis — A resident individual is subject to tax on worldwide income, with unilateral relief available for any foreign tax paid. A nonresident is taxable only on Mozambique-source income.

Residence — An individual is resident for tax purposes if he/she resides in the country for more than 180 days in a tax year, or has a permanent residence in Mozambique on 31 December.

Filing status — Only persons with income must file an annual return and, if both spouses have income, each individual must separately submit his/her own tax return and be subject to a separate tax rate. Dependents may be included in the declaration of only one taxpayer.

Taxable income — The income of an individual is taxed under separate schedules for employment, trade and business, capital gains, real estate and other income. Employment income is broadly defined and includes benefits or advantages received from the employer.

Capital gains — The capital gains tax depends on the length of time shares were held by a resident individual. 100% of capital gains derived by an individual from the sale of shares held for less than 12 months are taxed (increased from 75%); shares held between 12 and 14 months are taxed on 85% (increased from 60%); shares held between 24 and 60 months are taxed on 65% (increased from 40%); and shares held for more than 60 months are taxed on 55% (increased from 30%).

Capital gains resulting from a direct or indirect transfer by a non-resident of capital shares involving assets located in Mozambique are taxable in full, regardless of the holding period and regardless of whether the transfer is gratuitous, or for cost.

Deductions and allowances — Personal and dependent allowances are available.

Rates — Employment income is taxed under the PAYE system. Monthly withholding tax is a final tax and the highest marginal rate is 32%, which applies to monthly income approximating $4,825.

Other Taxes On Individuals

Stamp duty — Stamp duty at 0.4% applies to share transfers and 0.2% applies to transfers of buildings. Land transfers (which are always leaseholds) are exempt from stamp duty.

Real property tax — An annual municipal tax is assessed at up to 0.4% (for a residence) and 0.7% (for offices) of the value of urban property.

Inheritance/estate tax — Estate duty/donations tax is payable by the beneficiary/recipient. The rate ranges from 2% to 10%, depending on the amount and the relationship between the donor and the recipient.

Social security — The employee pays 3% of emoluments, with no upper limit.

Administration and Compliance

Tax year — Calendar year

Filing and payment — Taxpayers receiving income only from employment are still required to submit an annual income tax return, although income from employment will not be aggregated with other categories of personal income for annual taxation purposes.

The return is due by 31 March for taxpayers who received only income from employment and 30 April for others. Final tax payment is due by 30 June for income from entrepreneurial activities and 31 May for other income.

Penalties — There are penalties for late filing, nonpayment of tax and failure to disclose records. Penalties range from approximately $100 to $33,000. Interest is charged on late payments. Prison terms for tax fraud may be up to eight years and up to two years for negligence.

Value Added Tax

Taxable transactions — VAT is chargeable on the supply of goods and services in Mozambique, and on imports.

Rates — The standard rate is 17%. Banking, financial and certain health, education and philanthropic services are exempt. Services related to drilling, research and construction of infrastructure in the context of mining and oil activities during the exploration phase and the export of goods and services are zero-rated.

Registration — A unique tax number must be obtained and a declaration filed at the time activities are commenced.

Filing and payment — A monthly VAT return must be filed by the last day of the following month.

Source of Tax Law

Corporate Income Tax Code; Personal Income Tax Code; Value Added Tax Code; Fiscal Benefits Code.

Tax Authorities

Mozambique Tax Authority (Autoridade Tributária de Moçambique).

Investors-Hand In Hand With Our Team

It is essential to obtain the best support in your business ventures and Deloitte in Africa is the leading professional services firm providing a full range of business advisory services.

Founded in London in 1845 by William Welch Deloitte, Deloitte is now the world’s largest professional services firm. Present in 150 countries throoughout the world it employs around 200,000 people and generated US$34.2 billion in revenue in 2013-14. Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate.

Deloitte offers assurance and advisory services including strategy, corporate finance, management consulting, technology, risk advisory, tax, outsourcing and audit. Deloitte has the largest number of clients amongst the New York Stock Exchange (NYSE) and London’s Stock Exchange (LSE).

Deloitte provides integrated and holistic solutions to companies, governments and Non-Government Organizations. It serves as a one point of call for any operation a successful organization must conduct, from a market entry strategy to a financial transformation.

After 20 years in Mozambique and having developed a portfolio of 200 clients across all industries and a staff compliment of 100 employees, Deloitte has now introduced its Premier Strategy Practice in the country: Monitor Deloitte. Mozambique has become the first African country for Monitor Deloitte’s expansion. It is also the first leading Strategy brand to be permanently based in the country.

Monitor Deloitte results from the successful integration of the Monitor Group into Deloitte’s consulting structure. Monitor Deloitte applies leading strategic frameworks to the most complex problems, including those originally developed by Harvard Strategy Professor Michael Porter (founder of the Monitor Group) such as the Competitive Strategy, Value Chain Analysis and the Competitive Advantage of Nations.

Monitor Deloitte brings a unique value proposition to clients seeking to win in Mozambique: The best intellectual pedigree, the strongest business competences and unrivalled local knowledge of Mozambique’s industries.

Monitor Deloitte is built around three core competences in Mozambique: Strategy, Financial Advisory and Development Advisory. The combination of these competencies with a local research base rich in industry insights converts informational advantages into competitive advantages empowering our clients to identify and mitigate risks that are inherent to Mozambique.

Monitor Deloitte focuses on servicing four industry groups

1) Financial Services,

2) Public and Donor Sectors,

3) Energy and Resources (Oil, Gas, Mining and Power) and

4) Infrastructure and Capital Projects.

Monitor Deloitte has a differentiated approach to consulting in Mozambique. Instead of flying consultants in from overseas, like other strategy firms do, we have created a team where knowledge is built and managed locally so that capacity stays in country and not fly away as projects conclude. Since we are based here we are always available to listen to our clients and understand their needs, we are not confined to specific project timelines.

Instead of temporarily hiring independent consultants on a project-by-project basis like development companies do we have built a local team of consultants with permanent contracts and have up-skilled them with focused training in multiple geographies in Africa, Asia, Europe and North America.

Monitor Deloitte also provides a unique approach to private sector development rooted in the application of pure corporate strategy and management standards to development challenges so as to increase the sustainability, effectiveness and efficiency in areas such as donor-funded initiatives, public enterprises and public sector, drawing from real-life business acumen gathered with the world’s most successful companies in our priority industries.

Since its inception in Mozambique, Monitor Deloitte has developed market entry strategies for investors from three continents, conducted feasibility analyses for new financial institutions, facilitated strategy formulation processes for oil and gas companies, provided advice on SME competitiveness, designed market linkages programmes for companies in the extractives and agri-business sectors, assisted in assessing the value chain and social impact of innovative business models for local communities, provided advice on the usage of mobile technologies to deliver social grant payments, as well as facilitated public enterprise and public sector financing strategies.

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