Cape Verde Personal Income Tax

Residents of Cape Verde are subject to personal income tax (Imposto sobre o Rendimento das Pessoas Singulares, or IRPS) on their worldwide income. Nonresidents are subject to IRPS on income arising in Cape Verde.

An individual is considered resident in Cape Verde if he or she meets any of the following conditions:

  • He or she stays in Cape Verde for more than 183 days in any 12-month period.
  • On 31 December, he or she has a dwelling in Cape Verde that suggests habitual residence in Cape Verde.
  • He or she exercises abroad public functions or commissions for the Republic of Cape Verde.
  • On 31 December, he or she is a crew member of a ship or air­craft at the service of an entity having its residency, head office or place of effective management in Cape Verde that has been resident in Cape Verde in the past five years.

Income subject to tax. The taxation of various types of income is described below.

Employment and pension income. IRPS is imposed on the earned income of employed individuals, which includes all payments related to work. It is also imposed on all types of pensions. Some exemptions are available, particularly for termination payments and pensions up to CVE960,000.

Business and professional income. Business and professional income includes all earned income of professional individuals and commissions and profits from a trade. Business and profes­sional income may be subject to one of the following two regimes:

  • Simplified regime for micro and small companies: turnover subject to a special rate of 4%
  • Organized bookkeeping regime: net profit subject to the stan­dard tax rates listed in Rates

Income may be taxed under the simplified regime if the taxpayer does not choose to use, and is not required to use, organized bookkeeping and if the annual gross business and professional income of the taxpayer did not exceed CVE10 million in the preceding year.

Directors’ fees. Directors’ fees are taxed in the same manner as employment income.

Rental income. Rental income is subject to withholding tax at a rate of 20%. This withholding tax is treated as an advance pay­ment on account of the final annual income tax. Rental income is included in taxable income in the tax return. Expenses incurred on the maintenance and repair of the property may be deductible up to 30% of the gross rental income. For subleases, the differ­ence between the rental income received and the rental income paid is not allowed as a deduction.

Investment income. Interest derived from public company bonds and state bonds and dividends are subject to withholding tax at a rate of 10%. Only 50% of dividend income is subject to tax.

In general, other gross investment income is subject to a final withholding tax of 20%.

Other income. A flat rate of 20% applies to gains from gambling, lotteries, betting and prizes awarded in sweepstakes or contests.

Capital gains and losses. Capital gains derived by individual tax­payers from the disposal of immovable property, intellectual property or shareholdings are subject to a flat rate of 1%.

Exemption for outbound expatriates working abroad. An exemp­tion for outbound expatriates may apply under the Tax Benefits Code of Cape Verde. The exemption relates to income earned by individuals performing management functions for companies carrying out investment projects established under a specific regime. It applies if the individuals qualify as residents for the first time in five years.

Deductions

Personal deductions and allowances. Personal allowances are granted in the form of credits (see Credits).

Business and professional deductions. Professionals and indi­viduals carrying on a business may be taxed under the simplified regime for micro and small companies or the organized book­keeping regime (see Business and professional income).

The organized bookkeeping regime provides for the deduction of activity-related expenses. Taxable income is calculated using the corporate tax rules, subject to the following limitations contained in the IRPS Code:

  • Travel and accommodation expenses are only deductible up to 10% of total revenue.
  • If a professional’s house is partially used as an office, the pro­fessional may deduct certain expenses, including rent, electric­ity, water and telephone costs, and depreciation, up to 50% of the total amount of expenses incurred.
  • Amounts booked as per diem allowances, kilometer allowanc­es, meal allowances and other remuneration allowances are not deductible.

Rates. The following personal income tax rates apply for 2016.

 

Taxable income  
Exceeding (CVE) Not exceeding (CVE) Rate (%)
0 960000 16.5
960000 1800000 23.1
1800000 ______________________ 27.5

Taxable income up to CVE220,000 is exempt from tax. The CVE220,000 is subtracted from the amount taxable. As a result, the 16.5% rate applies to income between CVE220,000 and CVE960,000.

For purposes of assessment of the personal tax liability on capital gains arising from the disposal of wealth goods, the following amounts are considered unjustified patrimonial increases and are taxable.

 

Evidence of wealth Income to be considered
Acquisition of immovable property in an amount above CVE15 million 25% of the acquisition price
Passenger vehicles acquired for a price above CVE5 million in the register year (the calendar year in which the first certificate of register of the vehicle is issued) 50% of the acquisition price
Loans granted amounting to at least CVE2,500,000 in a year 30% of the annual amount

Withholding taxes. Tax on income listed in the following table is withheld at source.

Withholding tax rates

  Witholding tax rates (%)  
Type of taxable income Residents Nonresidents
Employment income ______ (a) _______ (a)
Business and professional income 20 20
Royalties 20 20 (b)
Bank deposit interest 20 20 (b)
Interest derived from public company bonds and state bonds 10 10 (b)
Dividends 10 10 (b)
Income from the use or concession of equipment 20 20 (b)
Rentals 20 20
Pensions ______ (a) _______ (a)
Other investment income 20 20

 

a) Withholding taxes are deducted at progressive rates according to the levels of income.

b) This is a final withholding tax; income need not be declared.

Credits. For 2016, individuals may credit the following amounts against their tax liability:

  • CVE5,000 for each dependent not subject to IRPS, each dependent under declared permanent incapacity and for each ascen­dant who lives with the taxpayer and does not receive income above the minimum social security retirement pension (the credit is subject to an annual cap of CVE25,000)
  • 10% of documented medical expenses of the taxpayer or a member of the household (the credit is subject to an annual cap of CVE25,000)
  • 10% of alimony payments (the credit is subject to an annual cap of CVE25,000)
  • 10% of expenses incurred on the rental of the taxpayer resi­dence (the credit is subject to an annual cap of CVE12,500)
  • 10% of interest on certain loans and debts incurred for the acquisition or improvement of the taxpayer residence (the credit is subject to an annual cap of CVE12,500)
  • 10% of education expenses of the taxpayer or a member of the household up to 24 years old (the credit is subject to an annual cap of CVE12,500)
  • Advance personal income tax payments and taxes withheld at source

Other taxes

Inheritance and gift taxes. Inheritance and gift taxes were elimi­nated, effective from April 1999.

Property tax. Property tax is levied on the property value at a flat rate of 1.5%. It is payable by the owners or users of the property, regardless of whether they reside in Cape Verde.

Property tax is due in the following circumstances:

  • Annually, as a real estate tax
  • On the act of transfer, in case of acquisition of real estate
  • At the moment of disposal, in case of qualifying capital gains

To promote the regular registration of immovable property in Cape Verde, significant incentives have been introduced. Under the 2016 State Budget Law, real estate registration acts may ben­efit from the following tax incentives:

  • Notarial and private deeds with respect to the transfer of real estate are exempt from stamp duty for two years. This exemp­tion also applies to notarial and private deeds that aim to legal­ize real estate transfer transactions if certain conditions are met.
  • Legalization of the ownership of immovable property acquired by 31 December 2015 is exempt from real estate tax for two years from the moment when the deed is registered in the land register.

Touristic contribution. Under the 2016 State Budget Law, the tourist contribution established in 2013 remains in force. Accord­ingly, every overnight stay in a tourist establishment incurs a cost of CVE220 per occupant for a maximum of 10 nights. Children under 16 years old are not subject to this contribution.

Social security

Contributions. Social security contributions are payable on all salaries, wages, bonuses, subsidies and other regular income, excluding some allowances and transport subsidies. Effective from 13 April 2016, the employer rate is 16%, and the employee rate is 8.5%. An employer must deduct an employee’s contribu­tion and pay the total amount by the 15th day of the following month.

Self-employed individuals engaged in a business or professional activity are subject to a special regime for social security contri­butions. Their contributions are calculated on a base preselected by the individual. The following are the contribution rates for self-employed individuals:

  • 11% for the restricted social security regime
  • 5% for the extended social security regime

Employment incentive. Companies or individuals (with organized accounts) who hire young employees up to 30 years old for their first employment relationship for a minimum term of one year are exempt from the mandatory employer social security contri­butions if certain conditions are met.

Totalization agreements. To provide relief from double social security contributions and to assure benefit coverage, Cape Verde has entered into totalization agreements. Under social security agreements, foreigners who work up to two years in Cape Verde and who contribute to a compulsory social security scheme in their country of origin may not be subject to Cape Verdean social security contributions.

Cape Verde has entered into social security agreements with the following jurisdictions.

France                          Luxembourg                    Portugal

Italy                              Netherlands                     Sweden

A social security agreement is being negotiated with Senegal.

Cape Verde has also signed a community of Portuguese-language countries multilateral social security agreement with the follow­ing jurisdictions, which is not yet in force.

Brazil                           Portugal                           São Tomé and

Mozambique                                                        Príncipe

Angola, Equatorial Guinea, Guinea-Bissau and Timor-Leste have not yet signed the multilateral agreement.

Tax filing and payment procedures

The tax year in Cape Verde is the calendar year. Residents, as well as nonresidents who have filing obligations, with only em­ployment income or pension income must file their personal in­come tax returns by the end of March. Residents, as well as nonresidents who have filing obligations, with other income must file their returns by the end of May. Any balance of tax due or excess tax paid is payable or refundable when the Cape Verdean tax authorities issue the respective tax assessment.

Resident and nonresident individuals must use Form MOD 112 to self-assess the personal income tax. The tax return must be submitted electronically.

Double tax relief and tax treaties

Residents who receive foreign-source income are entitled to a tax credit equal to the lower of the foreign tax paid or the Cape Verdean tax payable on such income (after the respective credits). The credit applies to income derived from treaty and non-treaty countries.

Cape Verde has entered into double tax treaties with the Macau Special Administrative Region and Portugal.

Income tax treaties are under negotiation with Angola, Brazil, Equatorial Guinea, Luxembourg, Mauritius, Morocco, Senegal and Seychelles.