doing business in Mozambique

doing business in Mozambique country profile time zone GMT+2 official language Portuguese population 29 910 281 currency Mozambique Metical ( MZN ) government structure economic data Executive: The president is the head of state and the head of government, and appoints the cabinet. He/she is elected for a period of five years, is eligible to serve a second consecutive term and may vie for a third term. Legislative: Mozambique has a unicameral parliament. Judicial: The constitution provides for an independent judiciary that comprises seven categories of courts: the Supreme Court which is the highest judicial body; and other courts of justice; the Administrative Court; Courts Martial; Customs Courts; Fiscal Courts; Maritime Courts; and labour tribunals. Next presidential and parliamentary elections: October 2019. Nominal GDP (USD billions): 11.44 GDP per capita (USD): 387.48 Inflation rate (% change): 15.50 Government revenue (% of GDP): 27.70 Government gross debt (% of GDP): 103.17 *Source: IMF The main economic sector in Mozambique is agriculture, employing about 70% of the labour force. The main contributors to agricultural-sector growth are food grains (maize), wheat, rice, sugar, tobacco, cashews and cotton. Mozambique currently has four operational mega-projects: the MOZAL aluminum smelter, the Cahora Bass, a hydroelectric plant, the SASOL gas pipeline to South Africa, and international conglomerates such as Vale s and Rio Tinto s Moatize coal projects. An estimated USD24-billion will flow to the country as commercial offshore liquefied natural gas plants are developed. risk ratings World Economic Forum Global competitive index (2016-2017): 133/138 World Bank ease of doing business (2017): 137/190 Corruption perception index (2016): 142/176 international treaties and memberships international and regional organisations and customs unions bilateral investment treaties investmentrelated agreements / institutions dispute resolution intellectual property ( IP ) treaties African Caribbean and Pacific Group of States African Development Bank African Union British Commonwealth Common Market for Eastern and Southern Africa ( COMESA ) International Monetary Fund Southern African Customs Union Southern African Development Community Free Trade Protocol United Nations ( UN ) World Bank Mozambique receives preferential treatment under the following agreements: http://ptadb.wto.org//country.aspx?code=508 Mozambique has bilateral investment treaties in force with Algeria, Belgium-Luxembourg Economic Union, China, Cuba, Denmark, Finland, France, Germany, Indonesia, Italy, Japan, Mauritius, the Netherlands, Portugal, South Africa, Sweden, Switzerland, the United Kingdom, the United States and Vietnam. Treaties have been signed with Egypt, India, Spain, the United Arab Emirates and Zimbabwe, but these have not yet entered into force. African Growth and Opportunity Act Overseas Private Investment Corporation ( OPIC ) The Intergovernmental Authority on Development The Multilateral Investment Guarantee Agency ( MIGA ) World Trade Organization International Centre for Settlement of Investment Dispute ( ICSID ) Convention on the Recognition and Enforcement of Foreign Arbitral Award (New York Convention). A comprehensive list of IP-related treaties signed by Mozambique is available at: http://www.wipo.int/wipolex/en/profile.jsp?code=mz See further detail under the trade marks section below. 2017 08 1

legal regime applicable legal regime dispute resolution land acquisition, planning and use competition Mozambique has a mixed legal system of Portuguese civil law and customary law. Mozambique is a member of the ICSID and the Paris-based International Chamber of Commerce, giving investors adequate recourse to internationally accepted dispute-resolution methods. Disputes between the government and foreign investors can be sent for international arbitration; foreign investors are able to gain access to arbitration through the Centre for Commercial Arbitration, Conciliation and Mediation, funded by the United States Agency for International Development, which also provides commercial arbitration. For disputes involving local and foreign firms, there is recourse to the UN Commission on International Trade Law. Mozambique is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. All foreign-owned land was seized and nationalised in the 1975 revolution and establishing land ownership in Mozambique can be problematic and time-consuming. Currently, leases can be sought and granted for a period not exceeding 50 years, which may be renewed once. The administration process is protracted and cumbersome, but not expensive. merger control The Mozambican Competition Law regulates merger control in Mozambique. The law provides that the Mozambican competition authority controls mergers of enterprises that consist, in particular, in the acquisition of (a) all or part of the capital stock of an enterprise; (b) ownership or the right to use all or part of the assets of an enterprise; or (c) rights or of the entering into agreements that grant a dominant influence on the composition or deliberations of an enterprise s bodies. In calculating merger thresholds, Mozambique uses financial thresholds based on turnover in Mozambique and/or market share in Mozambique. Mandatory notification applies when (i) undertakings have a minimum combined turnover of MZN900-million; or (ii) the transaction results in the acquisition, creation or reinforcement of a share of at least 50% of the national market of a given good or service; or (iii) the transaction results in the acquisition, creation or reinforcement of a share of at least 30% of the national market of a given good or service and each of at least two of the undertakings involved in the concentration achieved a turnover of at least MZN100-million in the preceding year. Filing fees payable are an amount equal to 5% of the annual turnover (during the preceding year) of the undertakings involved in the concentration. The Mozambican competition authority will take public interest considerations into account in making a determination on the merger. prohibited practices employment requirements Mozambique is a pre-implementation regime, therefore approval must be sought from the Mozambican competition authorities prior to implementation of the proposed transaction. An undertaking that implements a merger in contravention of the law may be liable to a penalty of an amount not exceeding 5% of the turnover (during the preceding year) of the undertaking in question. Mozambique is not a member of any regional competition bodies. The law prohibits agreements and decisions by associations of undertakings and practices agreed upon by undertakings in a horizontal relationship which have, as their object or effect the impediment, distortion or restriction of competition, in an appreciable manner, in all or part of Mozambique. Horizontal conduct including, but not limited to, price fixing, market division, collusive tendering, provoking price oscillations without due cause and limiting or impeding access of new enterprises to the market, is prohibited by the law. Vertical conduct including, but not limited to, minimum resale price maintenance, price discrimination and refusal to deal is prohibited by the law. The law prohibits abuses of dominance. The Mozambican Competition Law Regulation provides for a leniency programme to be approved by the Mozambican competition authority. As at August 2017, the leniency programme has not yet become operational. A firm that engages in a restrictive horizontal or vertical practice or abuses its dominant position in contravention of the law may be liable to a fine not exceeding 5% of the turnover of that firm during the preceding financial year. immigration The contracting of foreigners by national and foreign employers is subject to authorisation by the Minister of Labour, or the entity to which the minister delegates. Non-citizens working in Mozambique require a work permit as well as a work visa and residence permit. Work permits will generally only be issued in accordance to the work permit quotas provided for by legislation. Although it is possible to apply for work permits over and above the work permit quota, this is only granted in very exceptional circumstances. Special provisions exist in the oil and gas industry. The following quotas are available for expatriates, depending on the classification of the company: 5% of the total number of employees for large companies (more than 100 employees); 8% of the total number of employees, for medium-sized companies (more than 10 and up to 100 employees); 10% of the total number of employees, for small companies (up to 10 employees). 2017 10 2

local employment vs secondment typical employment fixed term contracts and temporary employment services participation in statutory schemes payment in local currency restraint of trade agreements A short-term work permit, which does not fall under the work permit quota system, can be obtained for a period of up to 30 days. Employees that remain in Mozambique for more than 90 days per year require a work permit, which is valid for two years and renewable for an unlimited number of two-year periods. An employee may be seconded to Mozambique. It is a requirement for the employee to be employed by a local entity in Mozambique when performing services in Mozambique. It is legally permissible to enter into fixed-term contracts of employment that are either defined by time or purpose. The use of fixed-term contracts of employment is a common practice in Mozambique. The use of temporary employment services is permitted in Mozambique. Human Resources providers (i.e. labour brokers) must be licensed. Expatriates are not allowed to be employed through labour brokers. Employers and employees must make monthly social security contributions to the National Institute of Social Security ( INSS ). Expatriates may be exempted from participating in the social security schemes if they contribute to a similar scheme in their home countries. It is not a legal requirement for payments to be made in local currency in Mozambique. Restraint of trade agreements are not valid and enforceable in Mozambique, as the right to work is a constitutional right in Mozambique. However, the employer may prevent an employee from disclosing its professional secrets. foreign investment regime investment regime registration / licensing requirements non-industry specific registrations/ licences Mozambique Central Bank (Banco de Moçambique) registration The Private Investment Law and Regulations establish the framework for both domestic and foreign investment in Mozambique and sets out the procedures to be followed, guarantees to be given and financial incentives offered to all investors. The Investment Promotion Centre (Centro de Promoção de Investimentos ( CPI )) has the mandate to promote and facilitate domestic and foreign investment in Mozambique and serves as a onestop-shop for investment in Mozambique. Although it is not compulsory for foreign investors to register with the CPI, it is recommended to register in order to ensure: legal protection on property and rights, including industrial property rights; the right to transfer funds abroad; access to potential tax and customs incentives; Arbitration according to ICSID or International Chamber of Commerce rules for the resolutions of disputes on investments; and MIGA and OPIC services on issues related to investment risk insurance. For the specific purpose of remittance of profits abroad, the minimum value of foreign direct investment is fixed at MZM2.5-million and must be duly registered with the Mozambican Central Bank. The following general non-industry specific registrations/licences may be required: The subscription for equity share capital in a Mozambican company by a foreign entity is subject to the prior authorisation of the Mozambique Central Bank. Specific approval from the Central Bank is also to be obtained in respect of any loan funding to be granted by a foreign investor. The investment amount (equity or loan) is to be transferred into the target Mozambican company s Mozambican bank account and a bank statement (bordeaux) proving the receipt of funds is to be issued by the commercial bank and filed at the Central Bank, which will issue a Bulletin for Importation of Private Capital as proof of the registration of the foreign investment. business/ trading licence (Alvará) Any entrepreneur conducting an economic activity not covered by a specified sector (eg, energy, mineral resources, construction, etc.) must apply for a general trading licence (Alvará) from the ministry of industry and commerce. Owing to a recent reform, the licensing process can be completed at a one-stop shop (Balcão de Atendimento Único), which offers limited types of licences. 2017 10 3

Mozambique Revenue Authority ( MRA ) National Institute for Social Security (Instituto Nacional de Seguranca Social ( INSS ) workmen s compensation commission department of labour municipal licence industry-specific licences A single tax number ( NUIT ) is to be obtained for all types of taxes from the MRA in the area where the headquarters/domicile of the taxpayer is established. A tax return for commencement of activities is to be submitted to the MRA 15 days before the company initiates its activity in Mozambique. Employers must register with INSS within 15 days of commencing their activities and submit a notification of commencement of activities to the INSS. Employers must have collective insurance covering work accidents and occupational illness of their employees. For activities posing a particular occupational risk, enterprises must have specific collective insurance for employees exposed to that risk. A notification of commencement of activities has to be submitted to the Department of Labour in the form of a letter, disclosing the name and address of the company, number of employees and industry sector once the company registers the commencement of its activities at the Department of Finance. Although no specific municipal licence is required, municipal real estate and other taxes are payable to the local municipality. Industry-specific licences may also be required. incentives A comprehensive Incentive Code provides two main types of investment incentives, namely a general and specific investment scheme. The general incentive scheme includes: exemption from customs duties and value-added tax ( VAT ) for imports of qualifying equipment; deduction of amounts invested in specialised equipment utilising new technology, limited to 10% of taxable income of each tax year, for a period of five years; an accelerated depreciation allowance, consisting of a 50% increase of the applicable depreciation rate, for investment expenditure incurred in respect of new or restored buildings and equipment used in the industrial or agro-industrial sectors; deduction equal to 120% of expenditure incurred in a tax year for the construction or restoration of infrastructure and public utility works nationwide for the period of five years; and investment deduction of 5% or 10% of taxable income during a period of five years in respect of training provided to Mozambican personnel. The specific incentive scheme applies to the agriculture, fishery, hotel and tourism industry, large-scale development projects, rapid development zones and free zones. exchange control regulation types of entities available for foreign investment A special tax regime applies to mining and petroleum activities in Mozambique. The Mozambican Central Bank controls all transfers of direct investments and inward and outward payments. The importation and exportation of MZNs is prohibited. Foreign direct investment must be registered with the Central Bank of Mozambique within 90 days from the date of authorisation by the CPI, or of the effective entry of the investment amount. Pre-approval from the Central Bank is required for foreign loan agreements and technical assistance, management services, licensing and royalty agreements must be registered with the Central Bank. Remittances abroad may only be effected through the local banking system upon presentation of an investment and tax clearance document from the ministry of finance. Profits may only be remitted abroad where the direct foreign investment has a value of at least MZM2.5-million and has been duly registered with the Central Bank. Private limited liability company (Sociedade por quotas) ( Lda ); joint-stock company/public limited liability company (Sociedade Anonima) ( SA ;) registered branch of a foreign company; partnerships: general partnership (sociedade em nome colectivo); limited partnership (sociedade em comandita simples); and partnership limited by shares (sociedade em comandita por acções). 2017 10 4

private limited liability company minimum number of shareholders minimum share capital A Lda must have a minimum of two shareholders (except in the case of a single-shareholder Lda which may be held by a single natural person). There is generally no restriction on foreign shareholding, but specified industries such as oil and gas and construction may require local participation. There is no statutory minimum share capital requirement. However, it is recommended that the share capital is adequate for carrying out the company s activities and provide credibility to stakeholders such as banks and creditors. In practice, the recommended share capital amounts to MZN20 000. directors A company can have only one director or a board of directors composed of an uneven number, with a minimum of three directors. No local directors are required and all the directors may be foreigners. company secretary A private limited liability company is not required to appoint a company secretary. auditor A company should appoint a registered accountant, either as a full time employee or an accounting firm acting as service provider. The accountant is responsible for signing annual financial statements and tax returns to be submitted. The appointment of auditors is mandatory for: commercial banks; insurance companies; SA companies that issue bonds or are involved in the public subscription of shares; companies that are awarded investment projects that provide for fiscal incentives; and foreign-owned entities that intend to repatriate profits. registered address The company's registered office must be located in Mozambique and established at a precisely defined locality. It is allowed to use accountants /lawyers offices as registered address, subject to their independence requirements, regulatory restrictions and the applicable activity licensing formalities. shelf companies Shelf companies are generally not available in Mozambique. registration process The registering authority is the Legal Entities Registrar Office and it takes approximately one to two weeks to complete registration, provided that all documentation has been submitted. tax tax system Mozambique has a residence-based tax system in terms of which residents are taxed on their world-wide income and non-residents on income from a source in Mozambique. corporate residence corporate tax rate Companies are considered tax resident in Mozambique if they have their legal seat or place of effective management in Mozambique. The standard corporate income tax rate applicable to local incorporated companies and permanent establishments of foreign companies is 32%. Agriculture and stockbreeding is subject to a reduced tax rate of 10%. A special 35% tax rate applies to unsubstantiated, hidden or unlawful expenses, whether or not the company has made a profit. capital gains tax Capital gains or losses are included in ordinary revenue and taxed at the standard corporate income tax rate of 35%. withholding tax ( WHT ) rates double tax agreements ( DTAs ) WHT rate (%) payment to residents non-residents branch profits N/A N/A dividends 20% 10% (listed companies) interest 20% 10% (treasury bonds and public listed securities) 0% (interest paid to credit institutions) 20% 10% (listed companies) 20% royalties 20% 20% management, consulting and technical service fees 0% (if service performed or used in Mozambique) 20% DTAs are in force with Botswana, India, Italy, Macau, Mauritius, Portugal, South Africa, the United Arab Emirates and Vietnam. losses Losses may be carried forward for five years. transfer pricing Domestic and cross-border transactions between related parties must be conducted at arm s length. With effect from 1 January 2014, the concept of special relationship was introduced in the Corporate Income Tax Code. According to the new provisions, two entities have a special relationship where one entity has the power to exercise directly or indirectly a significant influence in the management s decisions of the other entity. The Mozambican Council of Ministers on 12 September 2017 approved Transfer Pricing Regulations which will become effective from 1 January 2018. 2017 10 5

thin capitalisation employee taxes social security contributions payroll taxes Interest paid by a resident company on excessive debt to a non-resident related party is not deductible. A non-resident lender is regarded as a related party if: the non-resident owns directly or indirectly at least 25% of the capital in the resident corporate borrower or exercises a significant influence on its management; or the non-resident and the resident corporate borrower are under the control of the same parent company. Excessive debt is the part of the borrower s total debt to each nonresident related party which exceeds, at any time in a tax period, twice the corporate borrower s net worth held by the non-resident. The income tax rates applicable to resident individuals are: annual chargeable income (MZN) tax rate flat rate rebate (MZN) up to 4 000 10-42 000-168 000 15 2 100 168 000-504 000 20 10 500 504 000 1 512 000 25 35 700 over 1 512 000 32 141 540 Social security contributions are payable monthly to the INSS by employers and employees. The rate of contribution for employers is 4% and for employees 3% on monthly earnings. There are no payroll taxes in Mozambique. stamp duty Stamp duty (imposto do selo) is levied under the Stamp Duty Code and Stamp Duty Table on all acts, deeds, documents, securities, books, papers and other transactions in Mozambique that are not subject to, or expressly exempt from, VAT. The duty is payable by the person who has an economic interest in the transaction subject to stamp duty. The transfer of shares and other participations, bonds and other securities is subject to 0.4% stamp duty and the acquisition of immovable property for a consideration is subject to 0.2% stamp duty. Transfer tax is charged on transfers for consideration of real estate located in Mozambique at a rate of 2% or 10%. VAT taxable supplies VAT (Imposto sobre o Valor Acrescentado, IVA) is levied on the supply of goods and services in Mozambique and on the importation of goods. VAT rate 17% registration threshold reverse VAT on imported services All corporate or individual entities carrying out taxable economic activities are obliged, prior to the start of their activities, to register with the MRA. Certain specified services, including telecommunications, banking, financial, insurance and reinsurance, use of copyright, licences, trade trade marks international conventions, treaties and arrangements marks, advertising, services by consultants, engineers, lawyers, economists, accountants, leasing and renting of moveable assets are subject to VAT in Mozambique if the customer is established or domiciled in Mozambique. If the service provider has not appointed a legal representative in Mozambique, the purchaser of the services must account for output VAT on behalf of the service provider in terms of the reverse-vat system. Madrid Agreement and Protocol (no local enacting legislations) Paris Union Trade-Related Aspects of Intellectual Property Rights World Intellectual Property Organization World Trade Organization. classification The international classification of goods and services applies. A separate application is required for each class of goods and/or services. categories of trade marks filing requirements Provision is made for: certification marks; collective marks; geographic indications; and service marks. Power of Attorney, notarised, incorporating a Portuguese translation; electronic copy of the mark; and priority document (if applicable), with a verified Portuguese translation. procedure Applications are examined as to formal requirements. Thereafter, it is advertised for opposition purposes, and subsequently returned to be examined for inherent registrability and conflict with prior existing registrations/applications. oppositions Opposition may be lodged within 30 days of advertisement of the trade mark application and a further extension for another 60 days is provided for. duration and renewal A trade mark registration is effective for an initial period of 10 years from the date of filing of the application, and thereafter, renewable for further periods of 10 years. In addition, a Declaration of Use must be filed every five years. For more information or assistance please contact: Celia Becker executive Africa regulatory and business intelligence cbecker@ensafrica.com cell: +27 82 886 8744 2017 10 6