Depreciation is considered a deductible cost with respect to all fixed assets (except land), up to the limits determined by the applicable tax law.
As a general rule, depreciation must be computed by using the straight-line method. Tax authorities may allow other depreciation methods on the basis that the actual depreciation is higher than the one calculated at regular rates or according to the taxpayer's accounting practice.
Under the straight-line method, the maximum depreciation that is deductible is calculated by applying the general depreciation rates set out by the Decree No. 42/2015, of 24 August, to the adjusted purchase cost or production cost.
Land is not depreciable.
Main depreciation rates for tangible assets
|Group||Asset||Depreciation rate (%)|
|Buildings||3 to 10|
|Water reservoirs||4 to 5|
|Seals and urban arrangements||5 to 8.33|
|2||Facilities||6.66 to 10|
|3||Machinery, equipment, and tools:|
|Apparatus and electronic machines||20|
|Laboratory and precision equipment||14.28|
|Scales||12.5 to 33.33|
|Workshop equipment||12.5 to 20|
|Machine tools||12.5 to 25|
|Boats||8.33 to 25|
|Motor vehicles||12.5 to 20|
|5||Other tangible fixed assets:|
|Movies, records, and audio cassettes||25|
|Drawing and typography materials||12.5|
|Molds, dies, shapes, and controls||25|
Main depreciation rates for intangible assets
|Asset||Depreciation rate (%)|
|Installation and expansion costs||33.33|
|Research and development (R&D) costs||33.33|
Goodwill is an asset subject to impairment tests. The goodwill’s impairment is not a deductible cost for tax purposes.
Start-up expenses include, among others, cost incurred with set-up and organisation of companies, projects, and increase of capital. Start-up expenses are considered a deductible cost up to the limits derived from the applicable tax law, 33.33% per year being deductible over a period of three years.
Interest expenses are deductible if considered indispensable for the realisation of taxable profits/gains (see Limitation on the tax deductibility of net financing expenses in the Group taxation section).
Bad debts are those where the related recovery risk is considered to be justified. According to the CIT Code, the recovery risk is justified whenever there is a:
- Company insolvency and recovery proceeding and enforcement procedure.
- Law court or arbitration court claimed debt.
- Overdue debt.
The deduction for tax purposes of impairment losses on overdue debt is subject to the following limits, computed on the amount of the debt:
|Impairment losses||Delay on payment||Limit (%)|
|Debt overdue||More than 6 and up to 12 months||25|
|More than 12 and up to 18 months||50|
|More than 18 and up to 24 months||75|
|More than 24 months||100|
Charitable contributions granted to certain entities whose main activity consists of the execution of initiatives in the social, cultural, environmental, scientific or technologic, sports, and educational areas are considered as cost for tax purposes (within certain limits, and in certain circumstances, with an additional deduction).
Fines and penalties
Tax fines and penalties are not deductible for tax purposes. Contractual fines and penalties are deductible for tax purposes.
Taxes paid in connection with the activity of the company are tax deductible, excluding CIT and autonomous taxation. The annual IUP cannot be deducted as a cost for CIT purposes.
Net operating losses
Income tax losses can be offset against taxable profit and can be carried forward for seven years, capped at 50% of the taxable profit. Carryback of tax losses is not allowed in Cabo Verde.
According to the transitional regime, tax losses generated before 2015 can be carried forward for three years without limit.
The tax losses incurred by a company are not transferable to another company unless previously accepted by the tax authorities.
Payments to foreign affiliates
Currently, there are no special restrictions on the deductibility of royalties, interest, and service fees paid to foreign affiliates, provided that the payments are regarded as indispensable to generate taxable profits and gains and to maintain the business of the company.
Payments made to foreign affiliates located in a favourable tax regime are not accepted as deductible tax costs unless it can be demonstrate that the payment is a necessary cost and is not an exaggerated amount (i.e. it should be demonstrated that it is an acceptable/normal amount).