Corporate - Income determinationLast reviewed - 08 March 2023
The taxable profit of resident entities and PEs is determined by following the partial dependence model, which means that the taxable profit consists of the sum of net profit for the financial year and the net variations in equity not reflected in the net profit, as accrued and determined for accounting purposes, and subject to tax adjustments set forth in the CIT Code.
The inventory valuation criteria accepted for tax purposes for the determination of the accounting profit / losses of the year are those that use:
Effective acquisition and production costs
Companies that use this criterion can value their inventory based on the following methods:
- Specific cost: Cost incurred in the acquisition or production.
- Weighted average cost: The outputs of the stocks are valued at a unit cost resulting from the weighted mean of the quantities purchased and prices of different purchasing.
- First in first out (FIFO): Outputs from inventories are valued at the cost of goods that are the oldest in the warehouse.
The last in first out (LIFO) method is not allowed.
Standard costs assessed according with adequate technical and accounting principles
Whenever there is significant deviation from the standard costs, the MTA may make the necessary corrections based on an investigation of the assumptions used, on the amount of the sales, and the final inventory turnover.
Sale prices deducted from the normal profit margin
This criterion is only accepted in sectors of activity where the acquisition or production costs become excessively expensive or cannot be assessed with reasonable certainty. Whenever it is not easy to determine the normal profit margin, a maximum 20% deduction to the selling price is accepted.
Special costing for basic or normal inventory
The adoption of this criterion is subject to the prior approval from the MTA on request basis.
Costing based on market price quote
In the case of taxable persons that produce and sell agricultural products and other biological assets, whenever they have suitable register and control over the production cycle, the inventories should be valued on the basis of the market price quote, deducting the costs at the sales point.
Capital gains less any capital losses derived from the sale or disposal of tangible fixed assets, including insurance indemnities received in case of accident, are taxed as part of normal income. If a taxpayer reinvests the sale proceeds within three tax years following the year of sale, the gain may be deferred until the end of the third year. A three-year reinvestment period may be accepted, provided a prior application is submitted to the Minister of Economy and Finance. However, if the taxpayer does not realise the reinvestment, the CIT that was not assessed during the three-year period will be assessed, along with compensatory interest.
Capital gains and capital losses are determined by the difference between the sales proceeds, net of related costs, and the acquisition value, net of tax-deductible depreciation or amortisation, adjusted by the inflation index.
Dividends received from resident companies in Mozambique subject to and not exempt from CIT or subject to the Special Tax on Gambling may be deducted in full for purposes of determining the taxable profit of the companies that are the beneficiary of the dividends, provided that the following conditions are all met:
- They are commercial companies or civil companies incorporated under the commercial form, cooperatives, and public companies.
- They are tax resident in Mozambique.
- The entity that receives the dividends directly holds at least 20% of the share capital of the entity distributing the dividends.
- That participation is held uninterruptedly, during the two years prior to the distribution, or if it has been held less time, the participation must be maintained during the time necessary to complete that period.
This deduction mechanism is also applied, irrespective of the percentage of shareholding and period during which the shares are held, to the following companies:
- Insurance and mutual insurance companies, with respect to income from shareholding in which technical reserves had been applied.
- Risk capital companies.
- Holding companies (the two-year period restriction applies).
- Companies associated in participation, incorporated as commercial or civil companies under the commercial form, cooperatives, or public companies, with head office or effective management in Mozambique (the two-year period restriction applies).
If participation exemption does not apply, a credit for domestic economic double taxation is applicable (see Credit for domestic economic double taxation in the Tax credits and incentives section for more information).
Interest income obtained by Mozambican taxpayers is taxed as part of normal income and taxed at the standard CIT rate. Any WHT incurred in interest income received is treated as a payment on account of the final CIT liability, refundable even if no CIT is due, in case of domestic interest income.
Interest on treasury bills, securities listed on the stock exchange, and on liquidity swaps between banks is taxed separately from normal income, being subject to WHT at rate of 20%.
Royalty income obtained by Mozambican taxpayers is taxed as part of normal income and taxed at the standard CIT rate. Any WHT incurred in royalty income received is treated as a payment on account of the final CIT liability, refundable even if no CIT is due, in case of domestic royalty income.
Mozambican resident companies are taxed on the total income earned on a worldwide basis. Taxes paid abroad can be offset against corresponding Mozambican tax (see Foreign tax credit in the Tax credits and incentives section for more information).
There are no provisions concerning tax deferral of income earned abroad.