Although Angola is one of the richest countries in Africa in terms of natural resources such as oil and gas, minerals, diamonds, water and agricultural potential, the country still needs to improve its education and health care, logistics, transport, energy network and infrastructure. .
Angola’s economy is still highly dependent on petroleum exports (accounting for roughly 92% of its exports and 20% of its GDP) and therefore subject to the fluctuations of oil prices in the international markets. Over the last few years, the country’s policy has been to try to diversify the economy and reduce its petroleum dependency: There are huge investment opportunities for local and foreign investors in various fields of activity.
Angola is a vast market, with great potential in terms of commodities, an increasing demand for diversification of the economy, and a need to improve infrastructure and the quality of services and interconnections between the inland area and major cities. With general elections coming up later this month, and oil prices again on the rise leading to an increase in valuation of the currency (kwanza), there is a positive outlook.
Angola has recently enacted legislation to streamline foreign exchange procedures and facilitate private investment through the approval of a free trade zone law with a number of incentives and benefits, the single investment window, and amendments to the private investment law to facilitate the process to approve private investment projects and negotiate investments.
The most recent development is the enactment of the Tax Benefits Code, which provides for private investment incentives and investment in free trade zones as well as, inter alia, incentives for production of electricity from renewable sources.
Main Features of the Tax Regime for Business
The Angolan tax regime is still a scheduled regime with various taxes being levied on different taxable events. As a general rule, income generated by companies is usually subject to Industrial Tax, or IT. Capital Income (royalties, dividends, interest) is subject to a different tax—Investment Income Tax, or IIT.
- Inbound commercial income
IT is levied at a 25% rate on profits arising from business activities carried out by companies with their registered seat or effective management in Angola and by permanent establishments of nonresident entities. Resident companies are subject to tax on their worldwide income, while PEs of nonresident entities are only subject to tax on their Angolan sourced income. The PE “force of attraction” principle is foreseen in the IT Code, hence commercial activities of a similar nature to the PE’s activity are also captured by Angolan IT taxation.
There are no tax relief mechanisms available for taxes paid abroad, therefore Angolan companies providing services to nonresident clients may suffer double taxation. Efforts to diversify the internal economy and for Angolan based companies to export services to become regional service provider leaders collide with the very scarce number of double tax treaties—there are currently only two in force, with Portugal and the United Arab Emirates. The China DTT has been approved but is not in force as yet.
Dividends, royalties and interest paid to Angolan residents are usually subject to IIT. Tax rates vary between 5% and 15% and there are no tax relief mechanisms in the IIT Code for taxes paid abroad.
The payment of service fees to nonresident entities with no PE in Angola, for services rendered in Angolan territory or paid by Angolan entities (irrespective of the place of performance) are currently—for financial year 2022—subject to 6.5% IT withholding, this being the nonresident’s final tax liability in the country. A note of caution: the IT withholding rate set out in the relevant code is 15%.
The State Budget Law for 2022 has enacted a special transitory regime allowing for a reduced 6.5% rate—in line with the rate in force before the latest change to the IT Code in 2020. There is an expectation that the lower rate will be maintained for 2023. , but this remains to be seen.
The DTTs with Portugal and the UAE follow the UN Model Convention and allow for a 5% IT withholding on technical services payments.
Dividend or remittance of profits payments by an Angolan taxpayer (company or PE) to its foreign shareholder or head office are subject to 10% IIT withholding. Double tax relief for the tax withheld in Angola will depend on the domestic law of the beneficiary. The DTTs with Portugal and UAE foresee a reduced 8% rate.
Shareholders’ loans are subject to a minimum non-rebuttable interest rate equal to the annual interest rate determined by the Angolan National Bank for credit operations between commercial banks and companies. IIT withholding tax rate shall be 10%. Under the DTTs with Portugal and UAE, the rates for withholding tax on interest are reduced to 8% for the UAE, and 10% for Portugal.
Royalties are subject to withholding tax at the rate of 10%. Royalties are defined under Angolan law as “any type of remuneration, regardless of its nature, either for the concession of the right to use a copyright over literary, artistic or scientific work, including cinematographic movies as well as movies and tapes broadcast through radio or television , patents, designs, models, plans, and secret formulas or processes, as well as for the use or the right to use industrial, commercial or scientific equipment (authors’ emphasis), or information concerning acquired industrial, commercial or scientific experience.” The DTTs with Portugal and the UAE may reduce the rate to 8%.
Capital gains arising from the disposal of shares in an Angolan company by nonresident shareholders will be subject to 10% IIT. The provisions regarding capital gains obtained by nonresident shareholders lead to significant doubts on the enforceability of the IIT provisions as only payments made by or to an Angolan resident or PE of a nonresident seem to be captured by the law. This generates considerable doubt as to whether transactions between non-resident shareholders are subject to capital gains taxation.
Interest arising from credits and loans granted by shareholders are tax deductible up to the limit of the average annual interest reference rate published by the Angolan National Bank. Any amount over this limit must be accrued to taxable profits.
Prior to 2020, the tax neutrality regime for certain mergers, de-mergers and spin-offs only applied to large taxpayers, listed as such by the tax authorities. As of mid-August 2020, provided certain conditions are met, notably maintaining the tax treatment and accounting values recorded, any IT taxable person may benefit from the tax neutrality regime for these operations.
Transfer pricing provisions were approved by Presidential Decree 147/13, of Oct. 1, 2013—PD 147/13—under which the tax authorities may make the necessary adjustments to the taxable profit of a taxpayer if, due to a special relationship between the taxpayer and another entity, the business conditions deviate from what should be considered as a price established under the arm’s-length principle. Such rules apply on a subsidiary basis to all IT taxpayers.
Companies listed as major taxpayers by the tax authorities with an annual turnover of more than 7 billion Angolan kwanza ($16 million) must prepare and submit a transfer pricing file identifying the relationships and the prices charged to the companies with which they have a special relationship as defined by PD 147/13.
Under PD 147/13, the transfer pricing methods acceptable to the tax authorities for computing the tax base for transactions between related entities are the comparable uncontrolled price method, the resale price method, and the cost-plus method.
As mentioned above, Angola currently has two DTTs in effect, with Portugal (applicable to tax events occurring on or after Jan. 1, 2020) and with the UAE (applicable to tax events occurring on or after Jan. 1, 2021).
As described above, both treaties follow the UN Model Convention and foresee reduced rates:
- Dividends: 8% (provided certain conditions are met) or 15%
- Technical services: 5%
- Interest: 8% for UAE, 10% for Portugal
- Royalties: 8%
A DTT with China has already been concluded but is not in effect yet.
The standard VAT rate is 14%, with no reduced rates.
There are some specific issues in Angola, notably the so-called captive VAT regime. In order to allow inspection of a smaller number of entities, very large taxpayers, such as the state and petroleum companies, have to “withhold” VAT assessed by their suppliers (for banks, insurance companies, telecoms companies at only 50%). This results in a distortion of the system and a considerable VAT credit position for the suppliers.
Although there is a dedicated reimbursement account, and reimbursements have been working, this poses a considerable challenge with respect to treasury management and administration of procedures relating to invoicing and reporting VAT, and has the potential to strain relationships with the tax authorities.
Other than VAT charged at import, customs duties can be a considerable cost for companies doing business in Angola. There are benefits for industrial products/raw materials, but rates vary between 2% and 70%.
Main Tax Incentives
For a private investor, the main tax incentives and conditions are included in the Private Investment Law, which sets out the rules applicable to investments made in Angola, including investor protections and special rules on repatriation of funds by foreign investors.
The granting of tax incentives and benefits is available to priority sectors defined in the Private Investment Law, such as education; agriculture; health services; forestry; textiles; tourism and leisure; construction, public works, telecommunications, airway and railway infrastructure; electricity production and distribution; and sanitation.
The main tax incentives and benefits are tax deductions, accelerated depreciation, tax credits, exemption and reduction of tax rates and customs duties, and tax deferrals.
If a project is included in a priority sector and in a least-developed area (such as inland Angola) and the amount to be invested justifies it, a maximum of 15 years of significant reduction of tax rates is available. Projects under a public-private partnership regime also benefit from the private investment incentives.
In the case of investments in free trade zones created through a presidential decree, the investors may benefit from customs and tax exemptions and benefits, for instance a 15% IT rate, an IIT exemption for dividends. A special visa, labor and foreign exchange regime may also be applicable.
In the case of renewable energy producers, a reduction of the IT rate to 16.25%, among others linked with the land and buildings, is also applicable. Other incentives for savings, remuneration of capital, and diversity in the workforce, are included in the Tax Benefits Code.
Other Relevant Issues for Investors
Foreign exchange is an issue that requires careful planning. Although the current legal framework is considerably more investor-friendly and less bureaucratic than a couple of years ago, dealing with the process with banks or the Angolan National Bank is still an area that requires special attention from businesses.
Employment and labor, taking into consideration Angolanization requirements and local content in specific sectors, such as petroleum industry service providers, is also an area that requires careful consideration.
In essence though, the changes enacted in recent years have shown a strong trend towards a more investor-friendly environment. We expect that coming years will continue to see this trend grow, notably through an expansion of the DTT network. We would also expect to see a simplification and enactment of internal law mechanisms for elimination of double taxation under the commitments that Angola has made through the DTTs.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Maria Figueiredo is Counsel and Tiago Graça is a Managing Associate with CMS Portugal.