Corporate tax in Cape Verde

Summary

Corporate Income Tax Rate (%) 25 (a)
Capital Gains Tax Rate (%) 25 (b)
Branch Tax Rate (%) 25 (a)
Withholding Tax (%)
Dividends
Paid to Residents 10 (c)
Paid to Nonresidents 10 (d)
Interest
Shareholders’ Loans
Resident Shareholders 20 (c) (e)
Nonresident Shareholders 20 (d)
Private and Public Company Bonds
Paid to Residents 10 (c) (e)
Paid to Nonresidents 10 (d)
Bank Deposits
Paid to Residents 10 (c)
Paid to Nonresidents 20 (d)
Royalties
Paid to Residents 20 (c)
paid to Nonresidents 20 (d)
Payments for Services and Commissions
Paid to Residents 0
paid to Nonresidents 20 (f)
Rental Income
Paid to Residents 0
Paid to Nonresidents 20 (c)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 7 (g)

a) Corporate income tax (Imposto sobre o Rendimento das Pessoas Colectivas, or IRPC) applies to resident companies and nonresident companies with permanent establishments (PEs) in Cape Verde. Micro- and small-sized com­panies can benefit from a 4% reduced rate, which applies to their turnover. See Section B for details of other rates.

b) See Section B.

c) Income must be declared and is subject to the normal tax rates. Amounts withheld may be credited against the IRPC due. See Section B.

d) These rates may be reduced or eliminated by tax treaties.

e) A withholding tax exemption is available regarding interest from shareholder loans and corporate bonds if the shareholder is a pure holding company (sociedade gestora de participações sociais, or SGPS) holding a stake of at least 10% for at least one year in the affiliated company.

f) The 20% rate applies to most services and commissions and may be elimi­nated under a tax treaty.

g) The amount deductible each year is capped at 50% of the taxable profit for the year.

Taxes on corporate income and gains

Corporate income tax. Corporate income tax (Imposto sobre o Rendimento das Pessoas Colectivas, or IRPC) is levied on resi­dent and nonresident entities.

Resident entities. Companies and other entities, including non­legal entities, whose principal activity is commercial, industrial or agricultural, are subject to IRPC on worldwide profits, but a foreign tax credit may reduce the amount of IRPC payable (see Foreign tax relief).

A 50% IRPC exemption applies to entities exclusively engaged in agricultural and fishing activities.

Companies and other entities, including non-legal entities, that do not carry out commercial, industrial or agricultural activities, are generally subject to tax on their worldwide income (for details regarding the calculation of the taxable profit of these entities, see Section C).

Nonresident entities. Companies or other entities that operate in Cape Verde through a PE are subject to IRPC on their profits at­tributable to the PE.

Companies or other entities without a PE in Cape Verde are sub­ject to IRPC on their income deemed to be derived in Cape Verde.

For tax purposes, companies or other entities are considered to have a PE in Cape Verde if they have a fixed installation or a permanent representation in Cape Verde through which they en­gage in a commercial, industrial or agricultural activity. Under rules that generally conform to the Organisation for Economic Co-operation and Development (OECD) model convention, a PE may arise from, among others, the following:

  • A building site or installation project, including coordination, oversight and supervision activities
  • The performance of services (including consultancy) that last for more than 183 days
  • The existence of a dependent agent

Double tax treaties may limit the scope of a PE in Cape Verde.

Tax rates. For 2016, IRPC is levied at the following rates.

 

Type of enterprise Rate (%)
Companies or other entities with a head office
or effective management control in Cape Verde,
whose principal activity is commercial, industrial or agricultural
25
Micro- and small-sized companies with a head office
Or effective management control in Cape Verde
4
Entities other than companies with a head office
or effective management control in Cape Verde,
whose principal activity is not commercial,
Industrial or agricultural
25
P.Es 25
Nonresident companies or other entities without
a head office, effective management control or
a PE in Cape Verde
Income subject to withholding tax 10 / 20
Income not subject to withholding tax 25
Certain types of income earned by companies in the last category of companies listed above are subject to the following withhold­ing taxes.
Type of income Rate (%)
Interest payments 10/20
Royalties 20
Technical assistance 20
Income from shares (dividends) 10
Income from government bonds 10
Revenues derived from the use of, or the right to use, equipment 20
Other revenues from the application of capital 20
Payments for services rendered or used in Cape Verde 20

Applicable double tax treaties may reduce the above withholding tax rates.

A fire brigade surcharge (imposto de incêndio) is imposed on resident companies and nonresident companies with a PE in the municipalities of Mindelo (Island of São Vicente) and Praia (Island of Santiago). The fire brigade surcharge is applied at a rate of 2% to the taxable profit determined for IRPC purposes.

Companies licensed under the Cape Verdean International Busi­ness Center (IBC) regime benefit from a reduced rate of IRPC. This tax benefit, which applies until 2030, is based on the num­ber of jobs created. For companies licensed under the IBC regime and operating in the International Industry Center and the Inter­national Trade Center, the following are the IRPC reduced rates:

  • 5% for entities with 5 or more dependent workers
  • 5% for entities with 20 or more dependent workers
  • 5% for entities with 50 or more dependent workers

For companies licensed under the IBC regime and operating in the International Services Center, the IRPC rate is 2.5% if the entity has at least two dependent workers.

The shareholders of the companies that are licensed under the IBC may benefit from exemptions on dividends received and on interest derived from shareholder loans. Customs duties exemp­tions may also be available to companies licensed under the IBC regime.

Significant incentives are also available for qualifying investment projects under the Investment Law. Qualifying projects may enjoy the following tax benefits:

  • A tax credit equal to 50% of relevant investments made in tour­ism or tourism promotion industry and tourism property devel­opment, air and sea transportation services and port and airport services, renewable energy production, manufacturing and in­stallation of renewable energy equipment, scientific research and investigation, and information and communication technol­ogy development
  • A tax credit equal to 30% of relevant investments made in other areas
  • An exemption from municipal real estate holding tax and prop­erty transfer tax (see Section D) for buildings used in the project
  • An exemption from the stamp duty (see Section D) with respect to financing necessary for the investment project
  • An exemption from customs duties for certain goods and equip­ment

The above-mentioned tax credits can be used in the year of in­vestment for up to 50% of the IRPC liability. Any excess can be carried forward for 10 years.

Further incentives may be available for investment projects that have a value exceeding CVE3 billion, create at least 100 jobs and are relevant for the promotion and acceleration of the develop­ment of the Cape Verdean economy.

Cape Verdean tax law also provides for significant tax exemptions and deductions concerning investments toward internationaliza­tion (reduction of IRPC rate by 50%, as well as exemptions for stamp duty, value-added tax, customs duties, property transfer tax and legal costs [fees on the incorporation and registration of com­panies]), incentives in the savings and financial sector, incentives for the creation of jobs and incentives regarding training and culture.

Certain customs duties incentives are also available for fishing and industry activities, as well as for, among others, transporta­tion activities and social communication activities.

In addition, tax benefits (IRPC, stamp duty and property transfer tax exemptions) are also available with respect to recovery and insolvency processes.

Limitation of benefits. The amount of tax payable cannot be lower than 90% of the amount that would be assessed if the taxpayer did not benefit from certain tax incentives and deduction of tax losses carried forward. This cap does not apply to all tax benefits.

Simplified regime of taxation. Micro- and small-sized resident companies that have annual turnover of CVE10 million or less and 10 employees or less and meet certain other conditions may opt to be taxed under a simplified regime of taxation. Companies under the simplified regime of taxation are subject to an IRPC rate of 4%, which is levied on turnover.

Capital gains. Capital gains derived from the sale of investment properties, tangible fixed assets, intangible assets, non-current assets held for sale and financial assets are included in taxable income subject to IRPC. The capital gain equals the difference between the sales value, net of expenses incurred on the sale, and the acquisition value, adjusted by depreciation, impairment rele­vant for tax purposes and an official index.

Fifty percent of the capital gains derived from disposals of cer­tain assets held for more than one year may be exempt if the sales proceeds are invested in tangible fixed assets, intangible assets, investment property and shares during the period beginning one year before the year of the disposal and ending two years after the year of the disposal. A statement of the intention to reinvest the gain must be included in the annual tax return for the year of disposal. The remaining 50% of the net gain derived from the disposal is subject to tax in the year of the disposal.

If only a portion of the proceeds is reinvested, the exemption is reduced proportionally. If, by the end of the second year follow­ing the disposal no reinvestment is made, the net capital gain that remain untaxed (50%) is added to taxable profit for that year, increased by 15% and compensatory interest applies. A similar adjustment occurs if the assets in which reinvestment is made are not maintained by the taxpayer for at least two years from year­end of the tax year in which the reinvestment is made.

Losses from the transfer for consideration of shareholdings in tax-haven entities are not allowed as deductions. Losses resulting from shares are also not deductible if the seller has resulted from a transformation, including a change of the business purpose, of an entity for which such losses would not be deductible and if less than three years have elapsed since the date of transformation.

A pure holding company (sociedade gestora de participações sociais, or SGPS) may benefit from special rules. Under these rules, capital gains may be fully exempt, while capital losses and interest expenses associated with the acquisition of shares are deductible for tax purposes in certain circumstances.

Nonresident companies that do not have a head office, effective management control or a PE in Cape Verde are taxed at a 1% rate on taxable capital gains derived from disposals of real estate, shares and other securities. In general, the tax due is paid by with­holding tax. Certain gains may be taxed at a 25% rate and require filing of a tax return.

Administration. The tax year is the calendar year.

All companies engaging in activities in Cape Verde must register with the tax department to obtain a taxpayer number. Companies, including foreign companies with a PE in Cape Verde and foreign companies without a PE that had not been subject to withholding tax, must file an annual tax return, together with their financial statements and other documentation, by 31 May in the year fol­lowing the tax year.

Companies with a head office, effective management control or a PE in Cape Verde must make advance payments of IRPC. Com­panies whose principal activity is commercial, industrial, agricul­tural or fishing must make payments in March, July and Novem­ber of the current tax year. The tax base for the payments is 30%, 30% and 20%, respectively, of the preceding year’s tax liability. The tax rate of 25% is applied to this tax base to compute the amount of the advance payment. Each advance payment cannot be lower than CVE50,000.

Companies with a head office, effective management control or a PE in Cape Verde that have adopted a tax year other than the calendar year must make estimated payments as outlined above, but in the 3rd, 4th, 7th and 10th months of their tax year. They must file a tax return by the end of the fifth month following the end of that year.

Companies under the simplified regime of taxation must make advance payments at the end of April (regarding the first quarter), at the end of July (regarding the second quarter), at the end of October (regarding the third quarter) and at the end of January of the following year (regarding the fourth quarter). The IRPC rate of 4% is applied to the preceding quarter’s turnover.

If the total amount of the advance payments exceeds the tax due for the tax year, the excess may be carried forward as a tax credit against the tax payable in the following four years or refunded on the occurrence of certain events.

A nonresident company without a PE in Portugal must appoint an individual or company, resident in Cape Verde, to represent it with respect to its tax liabilities.

Penalties are imposed for the failure to file tax returns and sat­isfy other compliance obligations. If, on the final assessment, the tax authorities determine that a further payment is required and that the taxpayer is at fault, interest is imposed on the amount of the additional payment. Fines, which are generally based on the amount of tax due, are also imposed. If the tax due is not paid, additional interest is imposed from the date of the tax authorities’ notice that an additional payment is due.

Binding rulings. The General Tax Code grants the taxpayer the possibility of obtaining a binding ruling. The biding ruling is limited to a certain time period, which is determined on a case-by-case basis by the tax authorities. The ruling is subject to the pay­ment of a fee.

Dividends. Dividends paid by companies to residents and non­residents are generally subject to withholding tax at a rate of 10%.

On distributions to resident parent companies, the 10% withhold­ing tax is treated as a payment on account of the final IRPC due.

A resident company or a nonresident company with a PE subject to IRPC may deduct 100% of dividends received from another resident company if all of the following circumstances exist:

  • The recipient owns directly or indirectly at least 10% of the capital.
  • The recipient holds the interest described above for an uninter­rupted period of at least one year that includes the date of dis­tribution of the dividends or it makes a commitment to hold the interest until the one-year holding period is complete.
  • None of the entities benefit from a favorable tax regime, as defined by the General Tax Code.

The above regime also applies, under similar conditions, to divi­dends distributed by foreign affiliates if the underlying profits have been subject to and not exempt from income tax.

If the holding period or the minimum participation conditions are not met, the recipient may deduct only 50% of the dividends.

If a recipient qualifies for the 100% deduction, the payer of the dividends does not need to withhold tax. This requires the satis­faction of the one-year holding period requirement before distri­bution.

A withholding tax exemption applies to dividends distributed to nonresident companies if the requirements described above are met.

Positive liquidation proceeds are treated as deemed dividends in the portion corresponding to the difference between the liquida­tion proceeds attributed and the associated capital contributions. Any excess is treated as a capital gain. If the amount is negative, it is treated as a capital loss. Losses from the liquidation of sub­sidiaries are deductible only if the shares have been held for at least three years.

Foreign tax relief. Foreign-source income is taxable in Cape Verde. However, direct foreign tax may be credited against the Cape Verdean tax liability, limited to the lower of the following amounts:

  • The amount of tax incurred in the foreign country
  • The amount of IRPC attributable to the foreign-source income

If an applicable double tax treaty reduces the withholding tax rates, the tax credit is limited by the applicable treaty clause. The foreign tax credit cannot be carried forward.

Determination of trading income

General. Taxable profit is determined according to the following rules:

  • For companies with a head office or effective management con­trol in Cape Verde that are principally engaged in commercial, agricultural or industrial activities, the taxable profit is the net accounting profit calculated in accordance with Cape Verdean generally accepted accounting principles, as adjusted by the IRPC Code.
  • For companies with a head office or effective management con­trol in Cape Verde that do not principally engage in commercial, industrial or agricultural activities, the taxable profit is the net total of revenues from various categories of income described in the Personal Tax (Imposto sobre o Rendimento das Pessoas Singulares, or IRPS) Code, less expenses.
  • For PEs, the taxable profit is determined as outlined in the first bullet. In calculating taxable profit, general administrative ex­penses that are attributable to the PE may be deducted as a cost if justified and acceptable to the tax authorities.

Expenses that are considered essential for the generation or main­tenance of profits are deductible. However, certain expenses are not deductible for IRPC purposes including, but not limited to, the following:

  • Illicit expenses
  • Depreciation and amortization claimed that exceed the rates fixed in the Cape Verdean tax law
  • Provisions and impairments (except for those provided in the Cape Verdean tax law)
  • IRPC, stand-alone taxes and surcharges
  • Penalties and interest charges
  • Improperly documented expenses
  • Real estate taxes (except for companies engaged in real estate trading activities)
  • Expenses concerning pleasure boats and tourism airplanes, except for those allocated to public transportation companies or used for rental purposes as part of the company’s normal activities

Assets under financial leases are deemed to be owned by the les­see. Consequently, the lessee may deduct only applicable tax de­preciation and any interest included in the rent payments. Special rules apply to sale-and-leaseback transactions.

Thirty percent of expenses related to passenger vehicles, which are depreciation, rental, insurance, repairs and fuel, and 50% of representation expenses, are not deductible for tax purposes.

Although representation expenses and expenses related to private cars are deductible with some limits, they are subject to a special stand-alone tax at a rate of 10% (this stand-alone tax may not apply in certain cases).

A 10% stand-alone tax also applies to tax-deductible daily allow­ances and compensation for costs incurred by employees when traveling in their own vehicles at the service of the employer if these amounts are not charged to clients and not subject to IRPS.

Undocumented expenses are not deductible. In addition, these expenses are subject to a special stand-alone tax of 40%.

A 10% stand-alone tax also applies to certain fringe benefits at­tributed to the employer, which are gifts made to employees, sales of vehicles to employees below market value, travel expenses paid to employees if not related to the company’s activities and inter­est-free or low-interest-rate loans to employees.

Under the General Tax Code, in general, payments made by Cape Verdean residents to nonresidents subject to a more favorable tax regime are not deductible for tax purposes, and the payers are subject to a stand-alone tax at a rate of 60%. However, these pay­ments may be deducted and are not subject to stand-alone taxa­tion if the payer establishes the following:

  • The payments were made in real transactions.
  • The payments are normal.
  • The amounts of the payments are not unreasonable.

The above stand-alone taxes are imposed regardless of whether the company earns a taxable profit or suffers a tax loss in the year in which it incurs the expenses. In addition, all stand-alone rates are increased by 10 percentage points if the taxpayer incurs a tax loss in the relevant year.

Inventories. Inventories must be consistently valued by any of the following criteria:

  • Effective cost of acquisition or production
  • Standard costs in accordance with adequate technical and ac­counting principles
  • Cost of sales less the normal profit margin
  • Cost of sales of products harvested from biological assets, which is determined at the time of harvesting, less the estimated costs at the point of sale, excluding transportation and other costs required to place the products in the market

Changes in the method of valuation must be justifiable and ac­ceptable to the tax authorities.

Provisions. The following provisions, among others, are deduct­ible:

  • Bad and doubtful debts, based on a judicial claim or on an analysis of the accounts receivable
  • Inventory losses (inventory values in excess of market value)
  • Technical provisions imposed on insurance companies and fi­nancial institutions by the Cape Verdean regulatory authorities

Depreciation. In general, depreciation is calculated using the straight-line method. The declining-balance method may be used for new tangible fixed assets other than buildings, office furniture and automobiles not used for public transport or rental. Maximum depreciation rates are established by law. If rates that are less than 50% of the official rates are used, total depreciation will not be achieved over the life of the asset. The following are the principal official straight-line rates.

 

Asset Rate (%)
Commercial buildings 4
Industrial buildings 4
Office equipment 4
Motor vehicles 12.5 / 20
Plant and machinery 5 to 25

Companies may request the prior approval of the tax authorities for the use of depreciation methods other than straight-line or declining-balance or rates up to double the official rates. Approv­al is granted only if the request is justified by the company’s busi­ness activities.

Relief for tax losses. Tax losses may be carried forward for seven years. The amount deductible each year is capped at 50% of the taxable profit for the year. Loss carrybacks are not allowed.

Companies under the simplified tax regime cannot benefit from the relief for losses. Tax loss carryforwards are forfeited if the taxpayer states a zero annual turnover and does not obtain any income from its normal business activity for two consecutive tax years.

Groups of companies. The Cape Verdean Tax Law does not pro­vide a special tax regime for groups of companies.

Other significant taxes

The following table summarizes other significant taxes.

 

Nature of tax Rate
Value-added tax; levied on goods and services, other than exempt services 15.00%
Excise duties
General rate 10.00%
Other rates 0% to 40%
Social security contributions; on salaries; paid by
Employer 15.00%
Employee 8.00%
Self employed workers 11% / 19.5%
Property transfer tax; payable by purchaser 1.50%
Municipal real estate holding tax; local tax; imposed annually on the assessed tax value of the property on 31 December; tax payable by the owner of the property 1.50%
Stamp duties
Credit operations 0.50%
Interest on bank loans 3.50%
Guarantees 0.50%
Insurance premiums 3.50%
Bills of exchange, promissory notes and other negotiable debt securities 0.50%
Corporate operations 0.50%
Notarial acts of registrations and procedures 15.00%
Touristic contribution; for every overnight stay in a touristic establishment, up to a maximum of 10 nights; children under 16 years old are not subject to this contribution CVE220 per night
Ecologic charge; imposed on some products imported or produced domestically that are non-biodegradable or made per kilogram out of metal, glass or plastic; charge varies
depending on the quantity or weight of the goods; payable by the local producer or importer; exemptions are available, including packing material used in medicine or for
packing essential food, such as corn, rice, sugar, flour and milk
CVE2 to CVE200 per kilogram

Foreign-exchange controls

Foreign-exchange controls. The currency in Cape Verde is the escudo (CVE).

Cape Verde imposes foreign-exchange controls in certain situa­tions.

Foreign PE profits. Transactions between the head office and a foreign PE must respect the arm’s-length principle.

Mergers and reorganizations. Mergers and other type of corporate reorganizations may be tax neutral in Cape Verde if certain condi­tions are met.

Controlled foreign entities. A Cape Verdean resident owning, di­rectly or indirectly, at least 25% in the capital, voting rights or rights to income or estate of a controlled foreign entity (CFE) is subject to tax on its allocable share of the CFE’s net profit or income. For computing the 25% threshold, the capital and rights own ed, directly or indirectly, by related parties are also considered.

Several rules, which relate to the nature of the activity and wheth­er the activity is predominantly directed to the Cape Verdean market, may result in the non-imputation of profits or income of CFEs.

Related-party transactions. For related-party transactions (trans­actions between parties with a special relationship), the tax au­thorities may make adjustments to taxable profit that are neces­sary to reflect transactions on an arm’s-length basis.

A special relationship is deemed to exist if one entity has the ca­pacity, directly or indirectly, to influence in a decisive manner the management decisions of another entity. This capacity is deemed to exist in the following relationships:

  • Between one entity and its shareholders, or their spouses, as­cendants or descendants, if they possess, directly or indirectly, 20% of the capital or voting rights of the entity
  • Between two entities in which the same shareholders, their spouses, ascendants or descendants hold, directly or indirectly, a participation of not less than 20% of the capital or voting rights
  • Between any entities bound by dominance relations
  • Between a nonresident entity and its Cape Verdean PE
  • Between a resident entity and an entity located in territory with a favorable tax regime according to the General Tax Code

Debt-to-equity rules. A limitation to the deduction of interest expenses (net of interest revenues) applies. The tax deduction for net financial expenses is capped by the higher of the following amounts:

  • CVE330,000,000
  • 30% of the earnings before interest, taxes, depreciation and amortization

The nondeductible excess, as well as the unused fraction of the 30% threshold, may be carried forward to the following seven years.

Tax treaties

 

Dividends (%) Interest (%) Royalties (%)
Macau SAR 10 10 10
Portugal 10 0 / 10* 10
Non-treaty countries 10 10 / 20 20

* The 0% rate applies to interest paid by the state of one contracting country or derived by the state of the other contracting country.