MOZAMBIQUE / Oil and Mining Operations Tax Regimes

Through Laws No. 14/2017 and No. 15/2017 of 28 December, several amendments have been introduced to the Mozambican Petroleum and Mining Tax Laws. Both diplomas were also republished. The most significant amendments in both regimes – the amendments are similar in both laws - can be summarized as follows:

  • Tax paid as a result of all forms of transfer of equity or share participation interests in the oil and mining sectors shall not be deductible for Corporate Income Tax purposes;
  • Capital gains deriving from the direct or indirect transfer of petroleum and mining rights, by resident and non-resident entities, shall be subject to Corporate Income Tax at the autonomous standard rate of 32%. The territorial scope of this new provision shall cover any petroleum rights regarding assets located in Mozambican territory, regardless of the place where the operation is concluded, including the transfer of share capital participations between two non-resident entities. By setting up an autonomous taxation, capital gains shall not be offset against any tax losses that may still be carried forward;
  • A 10 years tax stability clause is set regarding the taxable basis, rates and tax holidays provided that the taxpayer concludes an effective investment of at least USD 100.000.000,00. Such period may still be extended through the payment of an additional 2% calculated over the standard rate for Production Tax purposes;
  • Entities that: (i) made an investment of USD 500.000.000,00 or higher; and (ii) carry more than 90% of its business activities in USD, are entitled to prepare and submit its annual certified accounts in US Dollars.

The rates of the Mining Production and Surface Tax where also altered, being set a 3% Production Tax rate for basic metals, coal, ornamental rocks and other mining products, and 1,5% for sand and rocks.


Mozambique – Transfer Pricing Regulations

Decree 70/2017, of 6th December has finally approved the Mozambican Transfer Pricing Regulations (“TP Regulations”), which shall be in force as from 1st January 2018. The regime is basically inspired in the OECD regulations.

The main features of the Mozambican TP Regulations are depicted below.

Scope

The scope is quite broad, covering corporate and personal income tax resident taxpayers carrying out transactions with both resident and non-resident related parties. Permanent establishments are also covered, including transactions of a PE located in Mozambique with entities located in low tax jurisdictions as defined in Mozambican tax law.

Concept of related entities

Two entities are deemed associated parties if managed or controlled by the same person (individual or company), a person is a key member of the management of the other entity or its parent company, or has the capacity to exercise a significant influence in the management decisions. This may be deemed to occur inter alia:

(i) Between an entity and its shareholders, their spouses, ascendants or descendants, which directly or indirectly hold no less than 10% of the share capital or voting rights;

(ii) Entities in which the same shareholders, their spouses, ascendants and descendants, directly or indirectly hold no less than 10% of the share capital or voting rights;

(iii) An entity and the members of its governing bodies, or any bodies from its administration, direction, management or audit, as well as their spouses, ascendants and descendants;

(iv) Entities in which the majority of the members of their governing bodies, or any bodies from its administration, direction, management or audit are the same persons or, being different, are related through marriage, non-marital partnership or affinity in direct line;

(v) Entities linked by a subordination contract, group parity contract or another contract with equivalent effect;

(vi) Entities in a controlling relationship, as determined in the legislation which states the obligation of presenting consolidated financial statements;

(vii) Entities which, due to their direct or indirect commercial, financial, professional or legal relations, depend on each other for carrying out their business activity (e.g. know how contracts, transfer of technology, etc.).

Transfer pricing methods

The new regime sets forth concrete transfer pricing methods that can be used to determine an arm's length price. The following methods are accepted:

  • Comparable Market Price method;
  • Reduced Resale Price method;
  • Cost Plus method; and
  • Profit Split method;
  • Transaction Net Margin method;
  • Other appropriate methods.

Taxpayers shall only be allowed to resort to the last three methods whenever the first and preferred methods are not applicable or may lead to less accurate results. The selected method must be kept in the course of the relevant tax year.

Special provisions

The TP Regulations provide for special rules regarding the importation and exportation of commodities, which price shall be determined according to the Comparable Market Price method. New provisions were also introduced to address cost-sharing agreements and intra-group contracts.

Transfer Pricing documentation

Taxpayers that have obtained, in the preceding tax year, an annual net turnover equal or above MT 2,500,000 will be required to hold transfer pricing documentation. Specific information is required for cost-sharing and intra-group agreements.

Taxpayers are also required to declare in their annual declaration of tax and accounting information whether they have carried out or not transactions with related entities.

Enter into force

The diploma entered into force on 1 January 2018.

 

All information contained herein are of general nature and for informational purposes only. It does not therefore intend to be nor shall be construed as legal advice on any of the matters addressed.