Income Tax in Mozambique
Personal Income Tax:
Residents are taxed on their worldwide income. Non-residents are taxed on income arising in Mozambique.
All individual income (capital gains, investment income, independent work, rental income, commissions, etc.) is subject to the below tax rates.
Earned income tax rates:
The following are the annual tax rates applicable to individual income:
* Mozambican metical
** Amount deductible after applying rate to whole amount.
For non-Mozambican residents, the earned income tax is withheld and remitted by the employer or other payer at a definitive flat rate of 20%.
A resident is defined as a person who fulfils one of the following criteria:
· Has resided in Mozambique for more than 180 days continuously or in aggregate in a fiscal year.
· Has resided in Mozambique for less than 180 days, but on 31 December, the last day of the fiscal year, occupies a residence under circumstances indicating intent to continue occupancy on a regular basis.
· Is a member of the crew of a vessel or of an airplane registered in Mozambique.
The individual income tax code has a very broad concept of remuneration that covers all payments in connection with work carried out in Mozambique, regardless of where payments are made or their nature (e.g. salaries, wages, earnings, rewards, percentages, commissions, partnership earnings, allowances or bonuses, attendance fees, emoluments, participation in penalties/fines, other accessory remunerations, and any type of remunerations in general).
Travel and accommodation paid by the employer that are not connected with the functions of the employee and taxes and other legal costs due by the employee and paid on their behalf by the employer are also considered employment income for tax purposes. All fringe benefits in cash or in kind, including housing allowances and the use of company-paid houses and vehicles, are also taxable pursuant to the law.
Gains resulting from the following are considered capital gains:
· The transfer of rights regarding immovable property and similar acts.
· The transfer of shareholdings and other securities.
· The selling of intellectual and industrial property and know-how.
· The transfer of contractual positions or other rights inherent in contracts regarding immovable property.
· Net income from operations in regard to financial instruments.
Capital gains are taxed as follows:
· 50% of the positive or negative balance resulting from the onerous transfer of rights or contractual positions regarding immovable property and intellectual and industrial property, including know-how, is taxable.
· In the case of gains or losses resulting from the onerous transfer of shareholdings, the percentage of the value to be considered for tax purposes is proportional to the time the taxpayer has held the shareholdings, namely:
o 100% of value if held for up to 12 months
o 85% of value if held between 12 and 24 months
o 65% of value if held between 24 and 60 months, and
o 55% of value if held for more than 60 months.
Capital gains are taxed at the year end, jointly with other income, at the annual tax rates established, which vary from 10% to 32%.
Capital investment income:
The following income is considered as capital investment income:
· Interest and other remuneration from capital.
· Interest and premiums on the write down or disposal of securities.
· Interest on shareholders loans and on profits not distributed to shareholders.
· Income from shareholdings.
· Income from intellectual property and from know-how if not earned by the original owner.
· Income from life insurance contracts.
Most capital investment income is taxed through withholdings by the paying entity at 20% with exceptions for income from debit bonds and interests from bank deposits, which are taxed at 10%.
Deductions from Income:
After assessment of gross tax, resident taxpayers are allowed to deduct the following amounts:
· Deductions related to the individual and family status of the taxpayer:
o MZN 1,800 for each married or single taxpayer.
o MZN 600 for one dependant, MZN 900 for two dependants, MZN 1,200 for three dependants, and MZN 1,800 for four or more dependants.
· Deductions of tax credit for international double taxation.
Deductions from business income depend on the taxation regime adopted by each taxpayer.
For individuals that are obligated to maintain statutory accounts (turnover above MZN 2.5 million), the assessment of net income is obtained after deductions of various costs connected with the activity, which include, among others, staff costs, rents, depreciation of premises and equipment, fees paid to third parties for services, power and water consumption, travelling expenses of up to 10% of gross earnings, and expenses, in general, that are incurred in the normal course of the activity or business.
Under this limit of annual turnover (i.e. MZN 2.5 million), tax will be accessed according to the simplified taxation regime, under which no costs are deducted against income and the total turnover is taxed according to certain coefficients: 0.2 for sale of goods and the merchandise sector, 0.2 for the accommodation and food and beverage sector, and 0.3 on revenue from all other sectors of activities.
Corporate Income Tax:
Corporate income tax:
Corporate income tax (IRPC) is levied on resident and nonresident entities.
Resident entities are companies and other entities with their head office or effective management and control in Mozambique. Resident companies, including unincorporated entities, whose main activity is commercial, industrial or agricultural, are subject to IRPC on their worldwide income, but a foreign tax credit may reduce the amount of IRPC payable.
Companies and other entities operating in Mozambique through a permanent establishment are subject to IRPC on the profits attributable to the permanent establishment.
Companies and other entities without a permanent establishment in Mozambique are subject to IRPC on income deemed to be obtained in Mozambique.
The standard corporate income tax rate is 32%.
Income earned by nonresident companies or other entities without a head office, effective management control or a permanent establishment in Mozambique is generally subject to withholding tax at a rate of 20%. However, the rate is reduced to 10% for income derived from the rendering of telecommunication services and associated installation and assembling of equipment, international transport services, aircraft maintenance, freight services, and the chartering of fishing vessels and vessels used in coasting activities. Income that is subject to a 20% withholding tax includes, but is not limited to, the following:
· Income derived from the use of intellectual or industrial property and the providing of information in the industrial, commercial or scientific sectors
· Income derived from the use of, or the assignment of, rights to industrial, commercial or scientific equipment
· Income from the application of capital
· Income from the rendering of any services realized or used in Mozambique
Mozambique offers various tax incentives to investors, which are summarized below.
The tax incentives described in the following three paragraphs are available for five tax years beginning with the tax year in which the company commences activities within the scope of an investment project approved by the Investment Promotion Centre.
Companies implementing investment projects benefit from the following main incentives:
· Tax credit for investment that ranges from 5% to 10%, depending on the location of the project
· Tax deductions ranging from 5% to 10% of the taxable income for investments with acquisition of state-of-the-art technology and training of Mozambican employees
· Tax deductions of up to 110% of investments for the construction and rehabilitation of public infrastructure
· Accelerated depreciation of buildings and equipment by increasing the normal rates by 50%
Companies implementing investment projects are also exempt from import duties and value-added tax on the importation of equipment classified as Class K in the Customs Manual.
Special tax incentives may be granted to the following projects:
· Projects in agriculture and tourism
· Projects with respect to basic infrastructure
· Projects located in Special Economic Zones
· Projects located in Industrial Free Zones
Special tax rules apply to manufacturing units that intend to operate under an Industrial Free Zone (IFZ) regime or in a Special Economic Zone. The main requirements for the IFZ regime are that at least 70% of production is exported and that a minimum of 250 workplaces are created. The government establishes the Special Economic Zones, which provide benefits similar to those of IFZs.
Capital gains derived by resident entities are combined with the other income of the taxpayer and taxed at the end of the financial year. Capital gains derived by nonresident entities are also taxable in Mozambique at a rate of 32%. Gains derived from direct or indirect transfers between two nonresident entities of shares or other participation interests or rights involving assets located in Mozambique are considered to be derived in Mozambique, regardless of the location of the transaction.
The tax year is the calendar year. However, companies may apply to the tax authorities for a different year-end if more than 50% of the company is held by entities that adopt a different financial year and if the different year-end is justified by the type of activity of the company.
Companies must make two types of provisional payments of corporate income tax. The two types are known as advance payments and special advance payments. The advance payments are made in three equal monthly installments in May, July and September of the tax year to which the tax relates. The total amount of these payments equals 80% of the tax assessed in the preceding year. The special advance payments are made in three equal monthly installments, in June, August and October. They equal the difference between 0.5% of the company’s turnover and the total of advance payments made in the preceding tax year. The minimum amount of the special advance payments is MZN30,000, while the maximum amount of such payments is MZN100,000. Companies that have adopted a tax year other than the calendar year make advance payments in the 5th, 7th and 9th months of the tax year and make special advance payments in the 6th, 8th and 10th months of the tax year.
Dividends are subject to a 20% withholding tax, except for dividends on shares listed on the Mozambique Stock Exchange, which are subject to a 10% final withholding tax.
Foreign tax relief:
Foreign-source income derived by resident entities is taxable in Mozambique. However, foreign tax may be credited against the Mozambican tax liability up to the amount of IRPC allocated to the income taxed abroad. Foreign tax credits may be carried forward for five years.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.