There are no group taxation provisions available in Mozambique. Each member of a group of companies preparing consolidated accounts for accounting purposes must file separate tax returns in order to be taxed on its profits on a stand-alone basis.
The tax authorities may proceed with the necessary corrections for assessing the profits for tax purposes whenever:
- by virtue of special relations between the taxpayer and other entities, different conditions from those that should be normally agreed upon between independent entities have been established, and
- in consequence of those conditions, the profits for accounts purposes are different from those that would have resulted had such special relations not existed.
The corrections above shall be equally applicable whenever the profits for accounts purposes regarding non-resident entities are different from those that should have resulted if the non-resident entity were a separate entity carrying out similar activities in similar conditions and with total independence.
The corrections referred to above will also be applicable to entities that carry out activities simultaneously subject and not subject to the CIT Code, provided that similar evasion regarding such activities is verified.
Whenever these corrections are applicable to one taxpayer of CIT (Taxpayer 1) by virtue of special relations with another taxpayer of CIT or of individual income tax (Taxpayer 2), the adjustments reflecting the corrections made in the calculation of the profits for tax purposes of Taxpayer 1 shall be applicable in the assessment of the profits for tax purposes of Taxpayer 2.
Although the definition of ‘special relation’ had been previously introduced into the transfer pricing regime foreseen in the CIT Code, the specific transfer pricing regulations were only recently approved and entered into force on 1 January 2018.
This regime contain rules with huge impact in the transactions between related entities, introduces some concepts, and lists the obligations related with information to be provided for transfer pricing purposes. Main topics include the following:
- The concept of 'related parties' for the purpose of transfer pricing is defined in more detail.
- A number of methods are listed to determine the terms and conditions that would be established in compliance with the 'arm's-length principle'.
- Specific rules are established to be observed in the agreements to be entered between related parties.
- The list of information and documentation is established that the taxpayer should obtain, prepare, and maintain to justify the adopted transfer pricing method.
Where loans from related foreign corporations exceed twice the corresponding equity in the borrowing Mozambican corporation, the interest on the excess borrowing is not tax deductible. Thin capitalisation rules are in force.
According to the Mozambican thin capitalisation rules, subsidiaries are considered and treated as thinly capitalised companies if and to the extent that, as at any date of the tax period, any of their relevant debt-to-equity ratios exceed a factor of two.
'Relevant debt-to-equity ratio', within the context of the law, means the ratio between, on one hand, the amount of direct and indirect indebtedness of a Mozambican company towards a specially related non-resident, and on the other, the amount of equity that this non-resident holds in the Mozambican company.
A 'specially related non-resident', for these purposes, is an entity with special links with another, which includes any entity that:
- holds, either directly or indirectly, at least 25% of the share capital of the Mozambican company
- though holding less than 25%, has a significant influence on its management, or
- both taxpayer and non-resident entity are under control of the same entity, which has participation in their share capital, either directly or indirectly.
Under any of these circumstances, interest paid to such specially related non-residents is not allowed as a tax-deductible cost for the Mozambican company in the part that corresponds to the excessive indebtedness, unless the company can prove that it could have obtained the same level of indebtedness at comparable conditions from unrelated parties, taking into account the nature of its business, its sector of activity, dimension, and other relevant criteria.
Controlled foreign companies (CFCs)
Profits obtained by companies residing outside Mozambique and subject therein to a regime that is clearly more favourable shall be allocated to shareholders residing in Mozambique in proportion to their respective shareholding and irrespective of whether or not they are distributed, provided that the shareholder holds a direct or indirect shareholding of at least 25% or at least 10% if more than 50% of a non-resident company’s capital is held directly or indirectly by resident shareholders.
A company is considered subject to a clearly more favourable tax regime if residing in a free-tax territory, where income grows free of tax or the effective tax rate is equal to or less than 60% of the Mozambican annual CIT rate, which is 32%.