2023 State Budget Law published
Law 16/X/2022, of 30 December, published in the Official Gazette, approves the 2023 State Budget Law. It is effective, in general, as of 1 January 2023. In general, the measures proposed have been enacted, of which we highlight:
- Research and development (R&D) tax incentives for companies.
- Incentive to the reinvestment of profits.
- Incentives to the production of renewable energies.
- Exemption from excise duties on the import of four-by-fours vehicles.
For further detail, please see our Tax Flash.
Special Economic Zone of the Island of Maio - Special tax regime published
Law 11/X/2022, of 6 June, published in the Official Gazette, regulates the Special Economic Zone of the Island of Maio in Cabo Verde (Zona Económica Especial da Ilha do Maio or ZEEIM).
The diploma now published establishes the ZEEIM, foreseeing the legal framework of the respective implementation, organisation, development, and functioning. It also establishes the tax and customs benefits regime applicable.
The ZEEIM includes a designated geographic area in the Island of Maio, comprising the Integrated Development Tourist Zones (Zonas de Desenvolvimento Turístico Integrado or ZDTI) in the south part of Maio village, of Ribeira Dom João and Pau Seco, as well as all areas in which related production facilities are built.
The following entities are entitled to the ZEEIM regime:
- Legal persons and branches duly registered in the one-stop-shop (Balcão Único).
- Natural persons that:
- are regarded, under Cabo Verde Law, as non-tax resident in Cabo Verde in the previous five years and remain for 90 consecutive or non-consecutive nights in the ZEEIM in any 12-month period starting or ending in the year concerned
- are duly registered in the Balcão Único, and
- pay the single annual fee amounting to 10,000 euros (EUR).
The eligible activities within the ZEEIM are listed in Annex II of the diploma now published. It includes, among others, agricultural activities, manufacturing industry, transports, telecommunications, computer consultancy, management consultancy, legal and accounting, head office activities, etc.
Eligible activities may include, once approved by a separate diploma, leasing of intellectual property (IP) and similar products. Activities related with the leasing of authors’ rights and R&D activities are, however, excluded.
Tax and customs benefits
ZEEIM comprises several tax and customs benefits. These do not apply to activities carried out by licensed legal and natural persons outside the geographic area of the ZEEIM. These shall be subject to the general rules applicable.
Corporation income tax (CIT or IRPC)
Legal persons and branches duly registered in the ZEEIM are entitled to reduced IRPC rates, depending on the number of jobs created (excluding part time work), as follows:
- 5% IRPC rate in case of creation of 10 or more jobs.
- 5% IRPC rate in case of creation of 20 or more jobs.
- 5% IRPC in case of creation of 50 or more jobs (minimum of four jobs in case of rendering of services).
Personal income tax (PIT or IRPS)
Natural persons eligible under the ZEEIM are entitled to reduced IRPS rates, as follows:
- 5% IRPS rate on income earned foreseen in the IRPS Code.
- 5% IRPS rate on income from a professional activity, subject to the creation of at least four jobs (excluding part time work).
The reduced IRPS rate depends on the payment of an annual single fee of EUR 10,000.
Non-resident legal and natural persons are exempt from taxation on income obtained in the ZEEIM as follows:
- Profits place at disposal by entities in which they hold sharecapital, which are licensed and subject to the ZEEIM special tax regime.
- Interest and other types of remuneration of shareholders loans and other advance payments of capital made to entities in which they hold sharecapital, which are licensed in the ZEEIM.
- Income from the rendering of services to entities licensed in the ZEEIM related with the respective activity.
The above exemption requires:
- In the case of legal persons, they must be subject, in their state of residence, to a tax with a similar nature to IRPC; the respective applicable legal rate shall not be lower than 60% of the IRPC with reference to the date of publication of the diploma that approved the ZEEIM.
- In the case of natural persons, they must be subject, in their state of residence, to a tax with a similar nature to IRPS.
Any other income obtained in the ZEEIM by non-residents is subject to taxation in Cabo Verde under general terms.
Value-added tax (VAT) and excise duties
An exemption from VAT and excise duties applies to legal persons and branches registered in the ZEEIM, as well as to natural persons resident in the ZEEIM that paid the annual single fee. The exemption applies on the importation of goods and services to be utilised and consumed within the tax free zone and the tax free shops in the ZEEIM.
The above exemption applies only to the acquisition of goods to be utilised and consumed within the tax free zone and the tax free shops in the ZEEIM in the case natural persons who are not resident in the ZEEIM and that have not paid the annual single fee.
Legal persons and branches registered in the ZEEIM, as well as natural persons resident therein, are exempt from property taxes on the acquisition and maintenance of the ownership (or other rights) of property located in the ZEEIM.
Legal persons and branches registered in the ZEEIM, as well as natural persons resident therein, that carry out activities in the ZEEIM are exempt from stamp duty. The exemption does not apply to entities that are regarded as resident in Cabo Verde under general terms.
Legal persons and branches registered in the ZEEIM, as well as natural persons with investment therein, are exempt from any taxes, fees, or charges on the importation of any goods that are necessary to carry out the eligible activities, within the context of the respective construction, installation, and maintenance.
Entry into force
The regime of the ZEEIM entered into force on 7 June 2022.
Special Economic Zone for Technologies - Special tax regime approved
Decree-Law no. 15/2022, of 12 May, published in the Official Gazette, creates and regulates the Special Economic Zone for Technologies (Zona Económica Especial para Tecnologias or ZEET). The ZEET is located in Praia, island of Santiago, and in Mindelo, island of São Vicente, in the Cabo Verde archipelago. The diploma establishes the rules for setting up and operating an entity in the ZEET, as well as the applicable tax and customs regime.
Scope of permitted activities
The ZEET targets technology entities developing activities having the following characteristics:
- Promote or foster wealth, added value, and job creation (specially, youth employment).
- Foster exports.
- Promote a culture of innovation, fostering creativity at the level of technological R&D.
- Facilitate the development of digital services.
- Create favourable conditions for an incubation hub for technology start-ups.
Tax and customs regime
Besides being granted financial incentives, entities authorised to operate in the ZEET are granted the following tax and customs benefits:
- Reduced IRPC rate of 2.5%.
- Exemption from IRPC or IRPS applicable to entities who are shareholders of ZEET-authorised entities concerning profits made available and interest and other types of remuneration of shareholders’ loans or advance payments made to the entity. This also includes interest due because of not receiving profits or other remuneration made available by the entity.
- Exemption from VAT.
- Exemption from stamp duty on the funding related with the investment.
- Exemption from property tax.
- Exemption from customs duties on the import of certain materials (e.g. software), equipment, raw materials, consumables, finished and semi-finished goods. Customs duties incurred are refundable in the case of the exemption not being granted.
- Exemption from notary fees on the incorporation and registration of the ZEET entity.
- 50% exemption on notary fees due on the purchase and sale of real estate used by the ZEET entity.
ZEET entities are required to comply with the tax obligations foreseen in the tax law, including transfer pricing, autonomous taxation, as well as assessment and payment of taxes. The tax obligations foreseen in the Tax Benefits Code (Código dos Benefícios Fiscais) for entities licensed in the International Business Center (Centro Internacional de Negócios or CIN) of Cabo Verde are also applicable to ZEET entities.
The ZEET regime entered into force on 13 May 2022. It is effective until 2030.
Special VAT regime for e-commerce approved
Following the publication of Law 4/X/2021, of 31 December (2022 State Budget Law), the special VAT regime for e-commerce was approved. It aims at taxing in the Cabo Verde territory distance selling and the provision of services originating from outside.
In brief, this regime applies to distance selling of goods originating from outside the Cabo Verde territory, as well as services rendered by taxpayers without head office, permanent establishment (PE), or domicile in Cabo Verde, whenever the acquirer has head office, PE, or domicile in the Cabo Verde territory, or if the payment originates in Cabo Verde or has the intervention of a financial institution established in Cabo Verde.
The regime does not apply to supplies above 10,000 Cabo Verdean escudos (CVE) or related to products subject to excise duties.
Under the regime, an entity that supplies goods and services to which the higher global value payments were made, either through credit card, bank transfer, or other means foreseen in the national financial system, is regarded as a taxpayer. These entities will be listed by the Ministry of Finance, based on information to be provided by financial institutions.