Taxation

The tax system is structured in a straightforward way and is based on usual standards. The tax administration remains the most persistant problem. The Value Added Tax (VAT) Code, approved by decree no. 51/98 of 29 September 1998, was successfully introduced in Mozambique on 1 June 1999. It is applied on the sale of goods and services within the national territory, as well as onimports of goods to the country. The rate is 17 per cent. The Specific Goods Consumption Tax is payable (in addition to the VAT) on the import and production of specific luxury goods. These include luxury vehicles, tobacco and alcoholic beverages. Rates vary between 20 per cent and 75 per cent.

Corporate Tax

Net Operating Losses Years

The corporate tax rate for the agricultural sector is 10 per cent until 2007. Thereafter it will be 35 per cent. Non-resident companies without a permanent establishment in Mozambique are subject to a 15 per cent withholding tax on gross income derived from activity carried out in Mozambique and related to (i) intellectual or industry property, (ii) industrial, commercial or scientific know- how, (iii) technical assistance and (iv) the use of agricultural, industrial, commercial or scientific equipment.Resident companies (companies with their head office or effective management and control in Mozambique) carrying out industrial, commercial or agricultural activities in Mozambique are subject to corporate tax on profits derived from Mozambique and on one-third of their profits before taxes earned abroad. The tax rate on Mozambican-source revenues varies but is generally 15 per cent.

Tax Reductions

Investments in new projects (greenfield investments) or in existing but inactive projects benefit from a 50 per cent reduction in the corporate tax rate during the period necessary for recovering the investment, up to a maximum of ten years. For investments in the provinces of Niassa, Cabo Delgado and Tete, the reduction is 80 per cent of the normal rates.

After the end of the period to which the tax reductions described above apply, additional benefits, which vary according to the location of the project, are granted. Investments located in the provinces of Cabo Delgado, Niassa and Tete benefit from a 50 per cent reduction in the corporate tax rate for a period of six years. A 40 per cent reduction in the corporate tax rates for a period of three years is granted to investments located outside the provincial capitals in the provinces of Manica, Nampula, Sofala, and Zambezia. Investments in the other provinces, outside the provincial capitals, benefit from a 25 per cent reduction in the corporate tax rate for a period of three years.

Special tax benefits are granted to investments for the rehabilitation or expansion of existing firms or projects. For a five-year period, an immediate 100 per cent write-off is allowed for investments in new equipment and in the construction of civil installations and agricultural infrastructure.

Capital Gains

Capital gains derived from the sale of fixed assets are included in ordinary income and are subject to tax at the regular rate. The gains are the difference between the sale price and the acquisition cost, adjusted for depreciation and (by an official coefficient) currency devaluation.

Capital gains on the sale of shares are liable to a Capital Gain Tax (CGT) at a flat rate of 18 per cent. The capital gains should also be disclosed for corporate tax purposes but a tax credit mechanism avoids double taxation.

Personal Tax

Tax on remuneration is called professional income tax (IRT). Residents are subject to professional tax only on employment income earned in Mozambique and on work performed abroad which is paid for by a Mozambique company. Non-residents are subject to professional tax on Mozambique-source income. Residents are defined as persons who reside permanently in Mozambique; who have resided in Mozambique for more than 180 days in a tax year; or those who have resided in Mozambique for 180 days or less, but on December 31 (the last day of tax year), have a residence under circumstances indicating an intent to continue occupancy on a regular basis.

Taxable Income

In general, professional income tax is levied on employment income paid in cash or in kind. However, subsidies for meals and entertainment and travelling allowances up to certain amounts are not taxable.

Income Tax Applicable to Employees

The income tax rates applicable to resident individual employees, whether national or foreigners, is the following: