The current Mozambican tax system, which was recently overhauled has a structure comparable to most modern tax systems. It has a tripartite structure, through which income, consumption and property are separately taxed. As a result of the growing development of the extractive industry in Mozambique, the tax component for this sector is gaining its autonomy.

Mozambique has agreements to prevent double taxation with the following countries: Portugal, Italy, Mauritius, United Arab Emirates, Macao Special Administrative Region, South Africa, India, Vietnam and Botswana.

In the foreign exchange context, any foreign exchange transaction, with the exception of current transactions, requires prior authorization from the Bank of Mozambique and subsequent registration. Respective amounts of foreign currency and other means of payment abroad, must be declared, whenever they exceed the amount equivalent to US$5,000. The foreign currency restrictions do not apply to non-residents for transactions in Mozambique, as well as other means of payment abroad, up to the limit declared at the entrance of these non-residents in Mozambique. 

In this chapter

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes

Legal system

Mozambique is divided into provinces and these into districts, which in turn are divided into administrative posts and these into localities. These divisions are joined by local authorities, called Municipalities. The country is operated under the common law legal system. The constitution of the Republic is based on the principle of legality. Based on this principle, only parliament may approve the revision and amendment of the essential elements of taxes, namely, the incidence rate, tax benefits and guarantees of taxpayers. The executive branch only has the power to regulate tax law.

Taxation authorities

The Tax Authority of Mozambique (AT) administers the national tax system in Mozambique. AT was created in 2006 and currently has 234 local collection units.

Business vehicles

The Mozambican Commercial Code, makes it possible for Mozambican or foreign individuals or clients to set up a business in Mozambique in one of five different ways: (i) general partnership (Sociedade em Nome Colectivo de responsabilidade limitada); (ii) quota company (Sociedade por Quotas); (iii) share company (Sociedade Anónima), (iv) simplified share company (Sociedade por Acções simplificada) and (v) single person company (Sociedade Unipessoal).

The recent Commercial Code revision, approved by Decree-Law No. 1/2022, of 25 May, eliminated limited partnerships, capital and industry partnership, and at the same time introduced the simplified share company and the possibility that a company with only one person can be a share company or simplified share company.

The new Commercial Code and recent updates to the legal regime for Money Laundering and Terrorist Financing brought the obligation to register beneficial owners. The concept of beneficial owner is introduced under the Money Laundering and Terrorist Financing legal regime and includes, in general terms, the natural person(s) who ultimately owns or controls (directly or indirectly) an entity. Commercial companies and other legal entities must submit updated declarations of the list of their beneficial owners. Entities that do not comply with the registration deadlines or that provide false information in the act of registration of the beneficial owner are prevented from carrying out any other procedure with CREL and subject to fines (yet to be defined by the authorities), without prejudice to criminal prosecution.

Foreign companies that do not intend to establish themselves in Mozambique may operate through the establishment of a branch. A foreign company or an external consortium must have a foreign trade representation.

Partnerships

Public-Private Partnerships (PPP) refer to developments in a public domain or in areas providing public services, excluding mineral and oil resources; large projects; and business concessions. The general regime for contracting PPP projects is that of a public tender and subsidizing, as per the rules that govern public procurement. As an exception and subject to prior authorization expressed by the Government, the contracting of PPP undertakings may take the form of negotiations or direct agreements.

The PPP Legislation also provides that the Government may grant types of financial incentives or facilities, in particular for projects of interest, such as national strategic plans that prove to be economically viable, but financially not feasible. In these cases, the State or another public entity may participate in the financing by way of subsidy, or participation in the share capital, or in the provision of financial guarantee, which can vary between 5% to 20% of the total amount.

Corporations

Mozambican private limited companies must have, in their designation, the mandatory mention “Limited” or abbreviated “Lda.” There is no minimum amount of capital and also, there is no minimum number of shareholders set by law. All documents that are issued outside Mozambique, must comply with the following formalities: they must be authenticated by a Notary Public, and legalized at the Embassy / Consulate of Mozambique (as applicable).

If the documents are prepared in a language other than Portuguese, it will be necessary to have them translated into Portuguese by a sworn translator.

The simplified share company is a new type of corporation, incorporated by sole or corporation, with limited liability and in their designation, the mandatory mention “Sociedade por Acções Simplificada”, or the abbreviation “SAS”. In this case, the shares suffer an important limitation, as they cannot be registered at the Central Securities Depository, and cannot be listed or traded on the Stock Exchange.

Sole Proprietorship

The sole proprietor may register with (in this case only the assets up to the value declared in the register are liable) or without liability limited to the value declared in the register and may at any time increase the value of the liability limit. If the limitation of liability is not expressly defined, the regime provides that liability must be unlimited, extending to all assets. The sole proprietor can be a quota company, share company or simplified share company, but cannot be a general partnership (Sociedade em Nome Colectivo de responsabilidade limitada).

Liability of Corporate Bodies

The directors, officers, managers and other persons who exercise, even if only de facto, management functions in limited liability companies, cooperatives and public companies are subsidiarily liable, and jointly and severally among themselves for the tax debts of the legal person in cases of tax offenses committed by them, under the terms, conditions and limits established by law.

This responsibility is extended to the members of the supervisory bodies, if any, of the companies, provided it is proven that the offenses committed are the result of willful malicious breach of supervisory duties.

Foreign corporation (without a Mozambican branch)

For the purposes of setting up foreign commercial representation in Mozambique, several acts /procedures are necessary. These procedures include, the Unique Tax Identification Number (NUIT) and the Opinion of the supervising body, in the event that the activity to be exercised does not fall within the competence of the Ministry of Industry and Commerce.

Mandatory Designation of Tax Representative

The following are required to designate a natural or legal person with residence in Mozambican territory, to represent them before the tax administration, in the cases and under the terms of the applicable legislation:

1. Non-resident natural or legal persons, with or without a permanent establishment in the country, who obtain income or have assets located in the territory;
2. Non-resident shareholders of resident or non-resident corporate bodies, with or without a permanent establishment in Mozambique, who obtain income or have assets located in Mozambique; and
3. Taxpayers who, although resident in Mozambique, are absent from the country for a period of more than one hundred and eighty days.

Tax benefits

Private foreign and national investments are offered a set of benefits, which include, among others, deductions from the tax base under the corporate income tax (IRPC) and exemptions from customs duties on imports. The minimum amount of eligible foreign direct investment, for the purposes of the benefits mentioned above, is that corresponding to MTC 2,500,000 (approximately EUR 71,500). The tax benefits include:

1. Exemption from customs duties and value added tax on imports of capital goods classified in class “K” of the Customs Tariff;
2. Investment tax credit;
3. Accelerated amortizations and re-integrations;
4. Deductions from the tax base of investments made in the modernization and introduction of new technologies;
5. Deductions from the tax base of investments made with professional training;
6. Exemption or reduction of the IRPC tax rate; and
7. Exemption from VAT in the taxation of goods.

Tax Benefits Statute (CBF)

The tax benefits statute (CBF) consists of a series of tax benefits structured in a general and specific way, attributed upon approval of an investment project. Concession contracts for mining and petroleum operations are awarded through a public tender process, pursuant to which applications for concession rights must be addressed to the Ministry of Energy and Mineral Resources.

CBF has generic benefits such as exemption from customs duties and VAT on imports, investment tax credits, accelerated amortizations and reintegrations and cost deductions with the introduction of new technologies and professional training. At a specific level, the CBF provides benefits depending on the following investment areas:

1. Creation of basic infrastructures
2. Trade and industry in rural areas
3. Manufacturing and assembly industry
4. Agriculture and fisheries
5. Hospitality
6. Science and technology parks
7. Mega projects
8. Rapid development zones
9. Industrial free zones
10. Special economic zones

Specific benefits for the mining and oil sector

The exemption from customs duties, excluding VAT, is established for a period of 5 years. This exemption covers the import of machinery, equipment and other goods classified as class K.

In addition, for specific goods that are not classified in class K, the law provides for a list of equivalent equipment and class K equivalents that are also exempt from customs duties.

Exchange Control

An exchange control regime is applicable in Mozambique. All foreign direct investments as well as domestic and foreign payments into and out of the country are subject to the control of the Banco Central Bank of Mozambique. This is necessary to ensure that foreign investors are able to repatriate their invested capital in the future and that dividends from the operations in Mozambique can be distributed outside of the country.

Financing a corporate subsidiary

Debt financing

Withholding tax implications

Interest payments including participating interest made by a resident company to a non-resident with whom they do business are subject to a 20% withholding tax. However, the withholding tax may be reduced or eliminated under an applicable double taxation treaty. Most of Mozambique’s double taxation treaties have a reduced tax rate of 10% on interest payments, except those with Mauritius and South Africa where the withholding tax rate on interest has been reduced to 8%.

Thin capitalization

When a taxpayer’s indebtedness to a non-resident entity with whom there are special relationships is greater than 200% of the corresponding equity amount, the interest paid in relation to the part of the indebtedness in excess of the permitted ratio is not deductible for the purposes of determining taxable profit.

Special relationships exist when: (i) the non-resident entity holds a direct or indirect interest in the taxable person’s capital of at least 25%; (ii) the non-resident entity does, in fact, have a significant influence on the management of the taxable person; or (iii) the non-resident entity and the taxable person are under the control of the same entity, namely by virtue of there being a direct or indirect participation.

Nonetheless, the interest paid in respect of the portion of the indebtedness considered to be excessive, will be deductible for the purposes of determining taxable profit if the taxable person demonstrates that, taking into account the type of activity, the sector in which it operates; the size of the company and other relevant criteria, it could have obtained the same level of indebtedness, under similar conditions with an independent entity.

Corporate income tax

Taxation Period

The income tax taxation period is from January to December, however companies may adopt a different calendar year if they may justify this change or if the entity is more than 50% owned by entities that adopt a different tax year.

Income tax rate

Corporate income is subject to a tax rate of 32%. Income not properly documented and expenditures done in a confidential or unlawful manner are taxed, separately, at the rate of 35%.

Non-Residents

For non-residents of Mozambique, the below tax rates apply:

1. Corporate Income Tax: 32%
2. Personal Income Tax: 20%
3. Capital Gains on disposal of shares: 32%
4. Dividends: 20%
5. Royalties: 20%
6. Services agreements: 20% (10% If related to transportation and telecommunication services)
7. Leases: 32%

Capital gains

In general, capital gains correspond to the balance determined between capital gains and losses realized in the same year. In the case of capital gains on securities, only: (i) 75% of their value is considered when held for less than twelve months; (ii) 60% of its value when held for a period between 12 and 24 months; (iii) 40% of the value when they are held for a period between 24 and 60 months; and, finally, (iv) 30% of its value when held for 60 or more months.

Capital gains in the extractive industry are calculated based on the difference between the amortization value and the acquisition value, deducting charges for the valuation of assets and disposal expenses, being taxed in full and separately at a rate of 32%.

Dividends

Dividends received are, in principle, included in the taxable income for IRPC purposes. However, they are excluded from the tax base (participation exemption) when the social participation in relation to which dividends are paid corresponds, to at least 25% of the company’s share capital, which pays dividends and is held for a period equal to or greater than 2 years.

Branch tax

The income obtained by a subsidiary of a non-resident company and without a permanent establishment is subject to a 20% withholding tax. However, when there is a permanent establishment, tax is levied on profit at a rate of 32%.

Computation of taxable income

Taxable base

A resident entity is taxed on its worldwide income. An entity that is not resident is taxed only on the income earned in Mozambique.

Taxable profit is constituted by the algebraic sum of the result for the year and changes in equity positive and negative verified in the same period and not reflected in that result.

Tax losses determined each year are deducted from taxable profits, in any, one or more of the five following years. Tax losses may not be carried back to previous years.

Deductions

A taxpayer is generally permitted to deduct its current expenses in computing business income. As a general rule, capital expenses are not deductible.

Tax Losses

The time frame for a company to deduct tax losses is 5 years. However, when the company suffers losses, but has turnover (also known as gross revenue) the company must pay a 0.5% tax on the prior year’s turnover in advance. Any tax payments made in the prior year are deducted from the current year’s liability.

The minimum turnover tax is MZN 30,000 and the maximum is MZN 100,000 and is paid in three equal installments. Where the tax year corresponds to the calendar year, the payments are due in July, August, and October of the relevant tax year. However, where the tax year does not correspond to the calendar year, the payments are due in the sixth, eighth, and tenth months of the relevant tax year.

Income tax reporting

Mozambican resident corporations and non-resident corporations that carry on business in Mozambique are required to file an annual corporate income tax return. Corporate tax returns must be filed within five months of the fiscal year-end of the corporation to avoid late filing penalties. Installment payments are required in respect of current-year taxes.

Cross-border payments

Transfer pricing

In Mozambique, there is a transfer pricing regime that applies to taxpayers (including permanent establishments) of Corporate Income Tax and Personal Income Tax domiciled in the Mozambican territory that have an annual turnover equal to or greater than MZN 2,500,000, who perform transactions with related parties.

In addition, these regulations apply to taxpayers who conduct transactions with entities incorporated in a low tax jurisdiction or in a country with a privileged tax regime.

Mozambique adheres to the arm's length principle for transfer pricing, i.e., the terms and conditions of a transaction involving a company and its related party must not be different from those that would normally be agreed upon between independent entities, otherwise the company will have to adjust as if they were independent entities.

In Mozambique, five internationally recognized methods are used as a basis for establishing transfer prices of a company, which are: (i) comparable market price method; (ii) low resale price method; (iii) cost plus method; (iv) split-profit method; and (v) net operating margin method.

Mozambican law provides for an interquartile range, which represents the acceptable portion of prices or profit margins obtained by applying one of the transfer pricing methods. If the relevant financial indicator falls in the interquartile range, the price or mark-up used by independent parties will be considered the median minus or plus 5% (depending on whether the price or mark-up is below or above the first or third quartile).

There are also provisions applicable to commodity transactions, cost sharing arrangements and intra-group services.

Taxpayers that fall under this regime must maintain and provide information with regard to an overview of the taxpayer's business operations, functions, assets and risk analysis, information on the comparable data used, as well as details of the analyses performed.

Withholding tax on passive income

Payments made by a resident of Mozambique to a non-resident in respect of certain types of interest payments, rents, royalties, dividends, management or administration fees and trust income distributions are subject to tax under corporate income tax (IRPC) at the rate of 20%. However, the rate may be reduced to as low as 5% under an applicable double-tax treaty (depending on the nature of the payment).

Withholding tax on services fees

Payers must deduct and withhold 20% of any payments to a non-resident of Mozambique in respect of general services performed in Mozambique. For the sectors of telecommunication, construction and rehabilitation of infrastructures linked to electricity and the chartering of vessels, the withholding tax is 10%.

International Agreements

Mozambique has treaties to avoid international double taxation with: Portugal, Italy, Mauritius, United Arab Emirates, Macau, South Africa, India, Botswana and Vietnam.

Mozambique is not a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), but the Southern African Development Community (SADC) is currently implementing the organization's trade protocol. SADC member states have agreements to eliminate trade tariffs on certain goods.

AGOA/GSP - Under the African Growth and Opportunity Act (AGOA) and the Generalized System of Preferences (GSP), a wide range of Mozambican products receive duty-free entry into the United States.

EU - Under the Cotonou Agreement, certain Mozambican products currently enjoy reduced tariffs or duty-free entry into European Union (EU) member states under an Everything But Arms (EBA) agreement.

Other bilateral trade agreements - Mozambique entered into a preferential trade agreement with Malawi in December 2005. This agreement was an update of a similar agreement signed by the Portuguese colonial authorities with Malawi prior to Mozambican independence. It allows for the free trade of goods originating in the two countries, excluding beer, certain soft drinks, tobacco, sugar, vegetable oil, chicken and eggs, office equipment, petroleum products, weapons, ammunition, and explosives.

The Mozambique-Malawi agreement has simpler rules of origin than those described in the SADC Trade Protocol. Mozambique is still finalizing a preferential trade agreement with Zambia.

Payroll taxes

Mozambican pension plan

The employer is subject to the payment of a 4% Social Security contribution, in relation to each worker.

Employment insurance

Work insurance is required to cover accidents at work.

Indirect taxes

Value-added tax

Value Added Tax (VAT) is levied on the value of the transfer of goods and services rendered in the national territory, for consideration, by a taxable person acting as such, as well as on the importation of goods. The general VAT rate is 16%, and there is a zero rate that applies to food and other basic products (such as lighting oil, domestic gas, mosquito nets for public health reasons, and intermediate goods linked to the production of sugar, soap and oils).

There are also goods and services to which VAT applies only to a fraction of the taxable value, resulting in four reduced rates: aeronautical fee-paying services (14.45%), water supply (12.75%), energy (10.54%) and public works (10.20%). Certain supplies of goods and services are also subject to a reduced rate of 5%, such as: (i) medical and sanitary services and related operations, by private hospitals, clinics, dispensaries and the like; (ii) services which have as their object teaching, when performed by private individuals; (iii) professional training, including lodging, meals and didactic material, performed by private entities; and (iv) lessons given in a personal capacity on school or higher education subjects.

VAT refund

Whenever a tax deduction exceeds the amount due for operations in the corresponding period, the excess can be deducted in the following tax periods. The taxpayer may request the corresponding refund when they have registered in a given month a credit in favor in excess of 500,000MZN, and should consider the credits in the current year in sequence.

If after 12 months from the period in which the excess began, the taxpayer maintains systematic credits of Value Added Tax, it must request, if does not want it all, the refund of at least 50% of the accumulated VAT credit.

Excise tax (ICE)

The Excise Tax selectively taxes the consumption of certain goods such as alcoholic beverages, tobacco, boats, and helicopters. The rates set are ad valorem rates and range from 5% to 75%. For certain goods listed, the application of ad valorem rates should be combined with the minimum amount of tax due per specific taxation unit. Payment of the tax is due when the goods are released for consumption.

For ICE purposes, consumption takes place when the manufactured product leaves the production unit under normal trading conditions, or, in the case of imported goods, when the respective customs clearance takes place, or when the finished product leaves the warehouse under the customs regime.

Customs duties

Customs duties are levied on the value of goods that are imported or exported across national borders.

In imports the reference base is, as a rule, the CIF value (cost, insurance and freight) and the rates currently in effect are as follows:

1. Raw Materials 2.5%;
2. Intermediate Goods 7.5%;
3. Capital Goods 5.0%;
4. Consumer Goods 20.0%;
5. Fuels 5.0%; and
6. Exports are generally duty free ("zero" rate), without prejudice to the "overvaluation rate" incident on a limited number of products such as cashew nuts and wood.

Municipal taxes

Mozambique has 65 municipalities, with municipal taxes on real estate, automobiles, economic activities, and improvement contributions.

Municipal taxes are specific to each Municipality, but fall into the following categories:

1. Autarchical Personal Tax;
2. Imposto Perdia Autárquico;
3. Municipal Vehicle Tax;
4. Municipal Property Tax;
5. Contributions for Improvement;
6. Fees for licenses granted and for economic activity;
7. Fees for the provision of services.

Land use fee

In Mozambique, land is owned by the Mozambican state. The state grants part of the land for use and charges a fee called the “land use fee.”

There are two types of fees: (i) authorization fees and (ii) annual fees. Rates are fixed and updated regularly. The amounts applied are different for national and foreign investors, and they also differ for different areas of the country and different types of land use.