The Mozambique Opportunity

Doing Business

Mozambique has joined the major league of investment destinations in the world, comparable only to South Africa in the African continent. Both countries are generating a record amount of FDI, at $56.3 billion according to UNCTAD's latest Global Investment

Mozambique has, in recent years, become a key country for exploration companies seeking to get a foothold in East Africa’s new hydrocarbon frontier markets, with huge gas finds off its coast fueling an exploration boom. Being in Mozambique now is the key to accessing all these opportunities, with an increasing attraction to investment in areas such as energy, infrastructure, telecommunications, railway and ports, roads, dams and irrigation schemes, transport, mining, oil, gas, and all the service sectors directly or indirectly linked to these areas.

The country must also be looked upon as part of a Southern African market, which is growing at a very rapid pace, with a stronger middle class that has an increased and more discerning buying power. This is in fact now a market of 285 million people.


Although rich in mineral resources, Mozambique has vast potential in energy production and export, fertilizer, port operations, agriculture, and tourism. Well known as a service-based economy in the past, Mozambique can soon become the preferred platform for hinterland transport and clearing services as well as transit services. There is also a drive to install the secondary market at the local stock exchange in order to capitalize local companies. This may shore up the financing needs of joint ventures where the local company has no or small financial capacity.

One of the major constraints to foreign investors is the human capital qualification and management of human resources. This is being addressed by the government with the adaptation of the curricula of some of the universities to the needs of the market and the introduction of skilled labor training programs and technical schools. Thus, investors must also prepare themselves to invest heavily in terms of in-house training.


Mozambique has been making legislative reforms to facilitate online registration and the licensing of companies, as well as the processing of imports and tax filings through the internet. The country has gone through a period of dominance by public and state companies to one where foreign investors and private entrepreneurs are the rising forces in the economy. In rural areas, the government has been decentralizing funds and revenues to the local administrations that have created a new dynamism in local power structures with a number of small local initiatives, from construction projects to small fish ponds, as well as the maintenance of local gravel roads.

Recently, Mozambique approved a number of alterations to various laws:

• A simplified tax system for micro enterprises;

• A general plan of accounts that is consistent with international reporting standards;

• A simplified system of taxing employment revenue;

• A simplified system for incorporation and registration of companies;

• Informatization of tax, customs, labor/social security filling processes;

• A special labor regime to contract specialists on a rotation basis for the oil and gas, and mining industries;

• A specific regime for the constitution of public and private partnerships (PPPs); and

• An adaptation of the prescriptions of the corporate tax code to the mining, oil, and gas requirements.

The following are also in process:

• A draft for transfer pricing regulation, the first to be enacted soon in the country;

• A review of the VAT code; as well as

• A new petroleum and mining law and regulation.

These changes will provide more accuracy and speed to these processes and operations and clarity on the underlying policies.


Investment basics:

Currency—Metical (MZM or MT locally)

Foreign exchange control—Incoming capital must be registered with the Bank of Mozambique. Foreign currency-designated accounts may be opened and funds retained.

Accounting principles/financial statements—Mozambique GAAP is based on the French system. Commercial banks adopted IFRS as from 2007 and other large companies may have done so as from 2010. Mandatory annual audit is required for multinationals and companies incorporated under the foreign investment law and branches and other registered companies that are controlled by foreign entities.

Principal business entities—These are the public company (SA), private limited company (Lda), joint venture, and branch of a foreign company.

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. As from January 1, 2014, 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 (for example as Mozambique-source income), regardless of where the sale takes place or whether the transfer is gratuitous or for consideration. Also, as from January 1, 2014, 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, 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. 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. As from January 1, 2014, 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 and the tax relief previously available depending on the holding period of the shares has been revoked.

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.


Alternative minimum tax—An AMT applies to very small entities; for example, those with turnover less than MZN2.5 million, or approximately $92,500.

Foreign tax credit—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 non-resident 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 non-residents 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. As from January 1, 2014, interest on treasury bonds and debt securities listed on the stock exchange, which previously was taxed at 10% and interest for liquidity swaps between banks, with or without collateral, which previously was not addressed by the law, are taxed at 20%.

Royalties—Royalties paid to residents and nonresidents 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 nonresidents 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) as from January 1, 2014, services relating to the maintenance of freight aircraft.

Other taxes on corporations:

Capital duty—No

Payroll tax—No

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 tax—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.

Other—An economic activity tax is charged on businesses in municipal areas, but the costs vary according to location, type, and size of the business.

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. As from January 1, 2014, 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. Regulation on transfer pricing is under preparation.

Thin capitalization—The deduction of inter-company interest may be limited where the indebtedness to a non-resident related party is more than twice the equity.

Controlled foreign companies—No


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. As from January 1, 2014, 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 MZN30,000 and a maximum limit of MZN100,000), less the provisional payment made in the previous year. The annual tax return and the balance of tax due must be submitted by May 31, 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 $200 to $66,000. 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 non-resident 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 December 31.

Filing status—As from January 1, 2014, the requirement for each household to file an income tax return is abolished. 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. As from January 1, 2014, 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 at 85% (increased from 60%); shares held between 24 and 60 months are taxed at 65% (increased from 40%); and shares held for more than 60 months are taxed at 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. The highest annual rate is 32%, which applies to monthly income approximating $4,825. Income from non-residents is subject to withholding tax at 20%.

Other taxes on individuals:

Capital duty—No

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.

Capital acquisitions tax—No

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.

Net wealth/net worth tax—No

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

Administration and compliance:

Tax year—Calendar year

Filing and payment—As from January 1, 2014, income from employment is taxed on a monthly basis (considered final tax) and will not be aggregated with other categories of personal income for annual taxation purposes. However, the filling of an annual tax return is still required.

Other income should be disclosed in the annual income tax return unless subject to final withholding tax. The return is due by March 31 for taxpayers who earned only employment income and April 30, for the others. Any final tax payment is due by June 30.

Penalties—There are penalties for late filing, non-payment 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, finance, 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 treaties—Mozambique has nine tax treaties.

Tax authorities—Mozambique Tax Authority (Autoridade Tributária de Moçambique).

International organizations—SADC; AGOA beneficiary country.

It is always important to obtain the best support in your business ventures and Deloitte in Africa is the leading professional services firm.

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