All inventory valuation methods generally accepted according to international accounting principles are permitted for tax purposes, provided that the method is:
- used by the taxpayer consistently and
- based on arm’s-length prices duly documented and effectively exercised.
Based on the above assumptions, last in first out (LIFO) and first in first out (FIFO) methods are allowed. Write-downs and depreciation of inventories are not allowed. Conformity between book and tax reporting is required.
Large companies began adopting International Financial Reporting Standards (IFRS) in 2010.
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 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 arising from indirect transfers of participating interests of assets located in the country are subject to taxation. Capital gains resulting from the disposal of shares, participating interests, or rights in general, between non-residents, whether direct or indirect, free or for consideration, are taxable in Mozambique, provided the transaction involves assets located in the country.
In the case of resident companies, income arising from dividends is excluded from taxable income, provided that the shares that a resident company holds in another resident company represents at least 20% of the total capital and are held for at least two consecutive years (or with an undertaking to hold the shares for this period). The same applies to income arising from risk capital companies and holding companies (Sociedade Gestora de Participações Sociais or SGPSs) or from subsidiaries as a result of the application of technical reserves in insurance companies. However, in the case of holdings, the percentage of share capital decreases to 10% and shares should be held for at least one year.
If the shareholding falls outside the parameters indicated above, the tax withheld (20%) constitutes a payment on account. A tax credit corresponding to 62.5% of the CIT is attributable to the gross-up dividend.
Interest is subject to 20% WHT. In the case of foreign entities, the WHT is considered as a definitive tax. In the case of resident entities, it is considered as an advance of the final tax.
Interests on treasury bonds and public debt bonds listed on the stock exchange are subject to definitive WHT at 20%.
Royalty income is subject to 20% WHT. In the case of resident entities, royalty income is considered as an advance of the final tax. In the case of foreign entities, the WHT is considered as a definitive tax.
In case royalty income is earned by a foreign entity with tax residency in a country with which Mozambique signed a double taxation treaty (DTT), the tax rate can vary from 5% to 10%, depending on the DTT.
Mozambican resident companies are taxed on the total income earned on a worldwide basis. Please note that there is no provision on tax deferral in Mozambique in relation to income earned abroad. DTTs allow tax paid abroad to offset Mozambican CIT. Mozambique has signed DTTs with Botswana, India, Italy, Macau, Mauritius, Portugal, South Africa, the United Arab Emirates, and Vietnam.