Moving into Mozambique

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Faizal Jusob explains how the African country is attempting to entice Indian investors

Mozambique welcomes Indian investors. The country has established a framework for ventures that involve state or private foreign direct investment (FDI) and foreign investment is allowed in all economic sectors, except for those reserved for domestic companies.

Faizal Jusob
Faizal Jusob

The country has a well-developed arbitration system that enables effective dispute resolution through: (i) Arbitration through the International Centre for the Settlement of Investment Disputes (ICSID) under the Washington Convention of 15 March 1965; (ii) ICSID arbitration under the ICSID Additional Facility Rules, where the investor is a national of a state that is not a signatory to the ICSID Convention; and (iii) Rules of the International Chamber of Commerce.

The key laws governing FDI into Mozambique include: The Law on Investment (LI); the Regulation of the Investment Law (RIL), 2009; the Code of Fiscal Benefits for Investments (CFBI), 2009; and the CFBI’s accompanying regulations.

To qualify for an investment authorization, a company must hold at least US$100,000 in (i) freely convertible currency; (ii) equipment and relevant spare parts, materials and other imported goods; and/or (iii) the transfer of land usage rights, patented technologies or registered trademarks, for which remuneration is limited to the participation in the distribution of profits resulting from the activity in which such rights, technologies or trademarks have been, or will be, used.

The LI, RIL and CFBI guarantee the security and legal protection of goods and rights, including industrial property rights, in investments that comply with the LI and its regulation. The Mozambican government, in line with conditions set out in relevant legislation, guarantees the remittance of funds in connection with: (i) exportable profits resulting from investments eligible for export of profits under the provisions of RIL; (ii) royalties or other payments for remuneration of indirect investment linked to the transfer of technology; (iii) amortization of loans and payment of interest on loans contracted in the international financial market and applied in investment projects in the country; (iv) proceeds of any compensation by the government; and (v) invested and re-exportable foreign capital, independent of eligibility, if the investment project is to export profits under RIL.

Tax benefits

Foreign investors in Mozambique can enjoy a number of fiscal benefits and incentives, including exemption from import duties and value added tax (VAT) for imported goods that are classified as “class K” of the Customs Tariff Table, (subject to certain restrictions). They may also enjoy tax credits for investment equal to 5% of the total investment realized for a period of five tax years from the beginning of their investment. This tax credit will be deductible from the corporate income tax assessed up to the total amount of the tax assessment. The tax credit will be between 10-15%, depending on the province in which investments have been made.

Such tax credits are not available on investments in corporeal assets resulting from the construction, acquisition, reparation and extension of buildings; non–commercial vehicles; furniture and articles of comfort or decoration; social equipment; specialized equipment seen as state-of-the-art technology; other equipment not directly related to and associated with the productive activity of the project.

Accelerated appreciation is permitted for new immovable assets used towards an investment authorized under the IL. Accelerated depreciation at twice the normal rate set by law to calculate the depreciation that is treated as a deduction is also permitted for rehabilitated immovable assets, machinery and equipment used in industrial and agro–industrial activities.

Furthermore, Mozambique offers tax deductions of up to 5% on investment expenditure used for the professional training of Mozambican workers.

The regime established under IL and its associated regulations does not apply to petroleum operations. A different fiscal incentives package has been developed for projects in the oil and gas sector.

Opportunities

Infrastructure shortages in Mozambique are creating a bottleneck in the production and export of coal, which has the potential to be a pillar of economic growth. At least US$50 billion in infrastructure investment is needed to support Mozambique’s coal and gas sectors alone.

Agribusiness is another untapped investment opportunity: 57% of land in Mozambique is arable, yet the country still relies on imports of fresh produce and no big international players are active in the sector.

Recent discoveries of 100 trillion cubic feet of gas reserves, combined with a proposed LNG plant with capacity of 10MTpa, have the potential to transform the country’s economy. They also present extremely attractive opportunities for investors from India.

Faizal Jusob (fjusob@cga.co.mz) is a partner at CGA in Mozambique.