Corporate - Income determinationLast reviewed - 05 February 2023
Taxable income is computed on the basis of the accounting income, adjusted by deducting from taxable profits the prior years' losses and any deductions under the tax (incentive) legislation.
The tax law does not foresee any mandatory inventory valuation method that should be adopted by Cabo Verdean taxpayers. For tax purposes, accepted inventory methods should be consistent with the accounting rules in force and with generally accepted local business practice. Such methods should be applied in a consistent manner over the financial years and based on the prices effectively paid or established by official documents (for regulated prices).
Capital gains are not subject to a separate capital gains tax and are treated and taxed as ordinary business income.
Capital gains and capital losses determined for tax purposes are usually different from capital gains and capital losses determined for accounting purposes and are quantified as follows:
Capital gains/losses = sales - (acquisition value - deductible accumulated depreciation - deductible impairment losses) x coefficient
Capital gains can be considered only in 50% of the respective amount if the sales proceeds are reinvested in the acquisition, production, or construction of tangible fixed assets, intangible assets, or non-consumable biological assets. For this purpose, the reinvestment must take place in the previous tax year, in the tax year in which the transfer occurs, or in the two tax years following the transfer.
In case of partial reinvestment, a partial relief (proportional to the investment made) will apply. In case the reinvestment is not fully accomplished during the reinvestment period, the difference (or the proportional difference) will be considered as taxable income of the second year following the disposal, increased by 15%.
Capital gains on the sale of share capital or other equity instruments, owned for a period of not less than 12 months, obtained by a resident or non-resident with a PE in Cabo Verde are exempt from CIT. This benefit does not apply to capital gains on the sale of share capital acquired from entities that are subject to a more favourable tax regime. The exemption also does not apply on capital gains arising on the transfer of shareholdings in a company in which more than 50% of the assets owned are composed, directly or indirectly, of real estate located in Cabo Verde (it includes the gains derived from the respective transfer for a consideration).
Capital gains on the sale of share capital or other securities obtained by non-resident entities without a PE in Cabo Verde are also exempt from CIT. This exemption does not apply on capital gains arising on the transfer of shareholdings in a company in which more than 50% of the assets owned are composed, directly or indirectly, of real estate located in Cabo Verde (it includes the gains derived from the respective transfer for a consideration).
The tax legislation provides a full relief from taxation on profit distribution at the beneficiary level, without any requirements to be met by the entities involved, except for entities with a local CIT rate reduction, for which the tax relief is only 50%.
There is no special tax provision regarding interest income. Interest income is treated and taxed as ordinary business income (excluding interest from bonds or similar products listed in the securities market).
The term ‘royalties’ is not defined as such in Cabo Verde’s principal tax law, but the relevant regulations define royalties as “income from intellectual, industrial copyrights, or from an experience acquired in an industrial, commercial, or scientific area, as well as income from technical assistance and from the use of commercial, industrial, or scientific equipment”.
Resident companies are subject to taxation on foreign income. Cabo Verdean tax law allows a foreign tax credit to mitigate the double taxation on foreign income taxed in another jurisdiction (see Foreign tax credit in the Tax credits and incentives section).
PEs of non-resident companies are taxable on a territorial base principle, meaning that income obtained outside Cabo Verde is not subject to taxation therein.