Mozambique Economy

26 January 2010
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MACROECONOMIC PANEL

 

The country's economy is based on agriculture, because this sector generates about a quarter of GDP.

 

The main agricultural products are rice, cotton, cashews, peanuts, sugar cane, tobacco, tea, coconuts for export.

 

To the domestic market are destined the following crops: cassava, potatoes, corn, sorghum, wheat, sunflowers, tropical fruits, poultry and fish.

In recent years the production of food has greatly increased, following the implementation of a number of government programs.

 

Transport and telecommunications are the fourth most important sector in the GDP after agriculture, manufacturing and trade.

 

Two other areas that have shown a good growth are those of construction and the mining and quarrying.

 

In the rehabilitation phase is also the railway network.

 

Bilateral trade relations with Italy are a major boost in Mozambique in the presence of some Italian companies (subsidiaries of Italian companies or companies founded and managed by Italians) mostly smaller than in July 2003 gave birth to the association of Entrepreneurs in Mozambique (EIM) recognized by the Ministry of Justice.

 

 

COMMERCIAL OPPORTUNITIES FOR ITALIAN COMPANIES

 

Mozambique offers major business opportunities for Italian companies within the following areas:

 

a) Facilities for the construction industry, alongside the progressive development and rehabilitation of road, rail and port operations and for large investment projects in progress;

 

b) Machineries and equipment for agriculture, the development and the desirable gradual modernization of the sector;

 

c) machineries for the food and packaging, associated with the development of the field of primary processing of agricultural products;

 

d) Machineries for the textile industry;

 

e) equipment for commercial fishing, because the country needs to renew its facilities, including the need to respect international standards for the export market (EU and USA);

 

f) Telecommunication equipment, given the need to develop and modernize the network from TDM was firm in the coming years (a fixed and virtually all of Italian origin).

 

Besides those mentioned, there are opportunities to orders placed through open international tender, associated with a project funded by the World Bank, Development Bank dall'African and in general by the agencies of donor countries.

 

 

INDUSTRY

 

The industry is underdeveloped, are present in the country mainly for food processing industries, foundries and steel plants, refineries, textile, beer and ceramic industries, chemicals (fertilizer, soap, paints).

 

However, the existing legislation guarantees the protection of patents, trademarks and industrial property rights.

 

 

 

 

MINING RESOURCES

 

The country has natural resources such as titanium, natural gas, hydroelectric resources, tantalum, graphite, coal, salt, bauxite, diamonds, oil and asbestos.

 

SECTORS IN EXPANSION

 

Stone / Gems

Mozambique is known for its large mineral deposits, especially the marbles that have a high potential, and gems.

 

Explorations have recently been conducted that led to the discovery of large deposits of black granite, graphite and semi-precious stones and other stone material.

 

Among the semi-precious stones, of particular importance are: Aquamarine, Emerald, Feldspar, Garnet, Quartz, Tourmaline.

 

As for the marbles, the potential is high, although the sector suffers from lack of infrastructure. Among the most interesting products: black granite, Labrador.

 

 

Wood

 

The wood is an important resource for Mozambique.

In fact, approximately 25% of the area is covered by forests, within which you can find different types of plants: Eucalyptus, Pine and rare hardwoods, high quality as sandalwood, Panga Panga and Chanfuta.

 

Tropical woods are generally used for flooring, general construction and home furnishings.

 

Could constitute an interesting opportunity to invest in  non-wood forest products (NWFP). There is a wide range of such products, such as medicinal herbs, bamboo, reed, and wild foods such as vegetables, fruits and tubers. These products are actively promoted by the Ministry of local agriculture.

 

 

 

Energy

The sector represents an important opportunity for development and investment, thanks to the liberalization of the energy market.

 

The government in fact, is trying to strengthen their national programs in the production of energy from renewable sources.

 

The Italian Companies are attracted to this area with a strong interest particularly for biofuels.

 

Other investment opportunities are represented by alternative sources such as wind power, gas and geothermal.

 

 

 

 

Investment Law

 

The investment law currently in force, approved by Decree No. 3 of 1993 and later reformed by Decree Number 36 of 1995 establishes the regulatory framework of the investment process in Mozambique, for both citizens and foreigners.

 

The investment legislation also provides tax benefits applicable to eligible projects, which vary depending on the location and activity.

 

The code of the tax benefits approved by Decree No. 16 June 27, 2002, determined that the

minimum value of the tax benefits of investment are set out in 50,000 U.S. dollars for foreign investment and U.S. $ 5000 for domestic investment.

 

 

Guarantees for investment in existing legislation include:

- Legal protection of property and rights,

- No limitation of loans and interest payments abroad,

- Freedom of transfer of dividends abroad;

- Arbitration for resolving disputes on investment.

 

Also provides for the establishment and development of industrial complexes or units that operate under the industrial free zones (ZFI).

 

The formation of ZFI is the responsibility of the Council of Ministers.

 

Industrial activities that may be authorized to operate under the ZFI are those that exported at least 85% of production.

 

 

Research activities and extraction of natural resources and fisheries can not be covered under ZFI.

 

Operators of ZFI enjoy exemption of customs duties for imports of construction materials, machinery, equipment, accessories, spare parts and other assets assigned to the enterprise.

 

They also exempt from value added.

 

In order to encourage investments a series of tax incentives  are planned ,that change depending on the area in question is the type of investment. Finally, it is necessary to note the entry into force (August 6, 2004)of the agreement to avoid double taxation wich was signed in December 1998 and recently ratified, which will greatly contribute to the removal of tax barriers to encourage more Italian business in the country.

 

There are opportunities to be explored in the agri-food industry, the tourism industry, the stone industry, precious stones, in the wood industry and the production and processing of consumer goods and light industry .

 

Special Economic Zones

 

Special Economic Zones (EEZ) are created with the aim of developing particular geographical areas demarcated by law due to the benefit of:

- Exemption of customs charges and tax;

- Scheme of exchange free to "offshore";

- Special arrangements with regard to employment law and immigration.

 

To date, we created a single EEZ, that of the Zambezi Valley, in force until the year 2025.

 

The Zambezi Valley lies in the geographic area that encompasses the following regions:

Tete Province (all districts);

Zambezia Province (districts of Morrumbala, Mopeia, Chindia, Milange, Mocuba, Maganja da Costa, Nicoadala, Inhassunge and Quelimane);

Sofala Province (the districts of Gorongosa, Maringa, Chemba, Caia, Marromeu, Cheringoma and Muanza);

Manica Province (the districts of Baru, Guro, Tembara and Macossa).

Repatriation of profits and capital i s guaranteed to foreign investors according to a procedure providing for the issuance of a certificate by the Central Bank.

 

THE TAX SYSTEM IN MOZAMBIQUE

 

Law no.15 of 26 June 2002 sets out the principles of the tax system of Mozambique. The tax system in Mozambique consists of national taxes and local taxes. Law 15/2002 establishes the national ones, relying instead on decentralized administrative bodies to determine local ones.

 

Taxes are classified into direct taxes and indirect taxes. Those currently in force are:

 

 

 

 

 

DIRECT TAXES

 

Corporate income tax - (IRCP)

The IRCP was approved by Decree No.21 of 30 July 2002. Its provisions apply from the financial year 2003.

 

The tax is applied on the annual income produced by the taxpayers, as defined and listed in the appropriate code IRCP established by law n.21/02:

a) commercial companies or civil commercial form, cooperatives, public enterprises and other collective persons of public law;

b) an organisme having no legal personality established in the territory of Mozambique whose real incomes are not amenable all'IRSP;

c) an oragnisme without a legally effectiveness within the territory of Mozambique whose income has been produced on the same territory.

 

The law provides that the rate that applies on the taxable income can not exceed 35%.

 

Currently, the rate is 32%. Taxable persons dell'IRCP operating in the agro-livestock benefit until 31 December 2010, a reduction of 10%.

 

Agricultural cooperatives, handicraft and cultural benefit of a reduction of 50%.

 

 

Income tax for individuals - (IRSP)

The IRSP was approved by Decree No.20 of 30 July 2002. Its provisions apply from the financial year 2003.

 

The tax is applied on the annual income produced by the natural person resident in the territory of Mozambique and the income in Mozambican territory by an individual non-resident.

 

The taxable income tax liability IRSP are those listed in the following categories:

1) Compensation of employees;

2) Income from employment and entrepreneurial training;

3) Investment income and capital gains;

4) Income from property;

5) Other income.

 

The rates that apply to taxable income are progressive (see table below). The law provides that in any case the rates should be between 10 and 35%.

 

 

 

Annual income tax rate Mtn

up to 28,000 10%

from 28,000 to 112,000 15%

from 112,000 to 336,000 20%

from 336,000 to 1,008,000 25%

than 1,008,000 32%

 

 

EXCISE

 

Indirect taxes provided by law Mozambique are divided into:

1) Value added tax-VAT;

2) specific consumption tax;

3) import duties.

 

VAT - Value Added Tax

This indirect tax is governed by Decree No. 51, 29 September 1998 and subsequently amended by Decree No. 55 of 10 December 2004.

 

This tax affects all goods and services which are traded on the national territory of Mozambique, as well as import of goods.

 

The rate is currently applied only by 17%.

 

Specific Tax on Consumption

The tax (the code was approved by Decree No. 52 dated 29 September 1998) applies to a particular list of goods (usually luxury) established by law.

 

It affects only once: on the producer or importer of the goods.

 

The rate differs from the type of asset.

 

Customs Taxes

These taxes incurr on goods imported or exported to and from the territory of Mozambique. The rates of customs duties are contained in a register (pauta Aduaneira).

 

The customs duties are applied on the CIF value (Cost Insurance & Freight) for goods imported and exported to the territory of Mozambique, Class K pauta Aduaneira. Part of K-class manufactured products such as hardware, machinery, electrical equipment, boilers, motor vehicles, tractors, etc..

 

Other indirect taxes

They are currently provided by law, the following additional indirect taxes:

- Revenue stamps;

- Taxes on inheritance and donations;

- Set of national reconstruction;

- Special tax on the game;

- Car tax;

- Excise tax on the purchase of property;

- Tax on fuel.

 

 

 

Registration to the Social Security system is mandatory for all workers. The social security contribution is 7% of the value of gross salary, of which 4% paid by the employer and 3% by the employee.

 

 

TRADE AGREEMENTS

 

Mozambique has signed agreements with Italy to avoid double taxation.

 

Are in effect over the following agreements and bilateral treaties:

 

- Cotonou Agreement;

- ICSID (arbitration facilitated by the World Bank) New York Convention on Recognition and reinforcement of international arbitration.

 

 

EXEMPTIONS

There is exemption from paying tax on acts for the establishment of the company, changes in capital and the social pact, during the first 5 years of operation.

 

It 'also provided a 50% excise duty on the purchase of property intended for industrial, agro-food and hotel.

 

The property must be purchased within the first three years after approval of the investment.

 

 

 

 

CUSTOMS DUTIES

 

Tariffs are still very expensive, despite the discipline rules were reformed in 1996.

 

The weighted average nominal duty was reduced from 18% to 9% while the tariff structure was rationalized in relation to a chaotic system which provided numerous exemptions arbitrary.

 

Tariffs on imported goods range from zero to 20% rate that applies on consumer goods.

 

At the time of sale on the domestic market, it must then add the value added tax of 17%.

 

 

PROPERTY

 

 

For the first five fiscal years and in the case of investments made by an individual in the case of a corporate person, shall be allowed tax deductions (IRPS and IRPC).

 

A tax credit is deducted from dell'IRPS or dell'IRPC as appropriate, value of 5% of total investment during the first 5 fiscal years if the investment is made in the provinces of Maputo, Nampula and Channel;

The percentage is 10% for investments in the provinces of Gaza, Sofala, Tete and Zambezia, and increases to 15% for investments in the provinces of Cabo Delgado, Niassa and Inhambane.

 

It covers other deductions from taxable for the first 5 years from the date of commencement of operations:

 

1) The investment in specialized equipment, consider advanced technology, is deductible from taxable up to a maximum of 15% of the base itself;

 

2) The investment made for the professional training of Mozambican workers, is deductible up to a maximum of 5% of the base;

 

3) The maximum limit up to 10% when the training is carried out for the use of equipment believed to have high technology.

 

 

EXCEPTIONAL INCENTIVES

 

For larger projects, the facilities provided are exceptional.

 

To investments that exceed or are equivalent to 500 million U.S. dollars, as well as those conducted in public amenities, built under license, can be given special incentives for a period of 10 years.

 

 

 

PRIVATE PROPERTY

 

Private property, including industrial property rights, is fully protected legally.

 

and protected property rights on buildings and furniture are recognized.

 

Levels are not recognized as soil properties for which the government offers concessions lasting 50 years with renewal options.

 

In fact, the system of concessions is the replacement of the full ownership, with the difference that the soil can not be used to guarantee bonds.

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