The tax levied on companies is called Imposto Único sobre o Rendimento (IUR – single tax on income).
The Cape Verde tax system is based on a territorial principle. This means that companies are taxed only on the income obtained in Cape Verde, and no taxation arises in Cape Verde on the income obtained abroad.
The IUR rate is 25%.
The IUR rate is increased by a fire brigade surcharge (Taxa de Incêndio), at the rate of 2% on the IUR due. The surcharge is levied only in the municipalities of Praia (Island of Santiago) and Mindelo (Island of São Vicente).
In case of non-resident entities, taxation arises only on Cape Verde source income. A 20% withholding tax applies, among others, in case of payments of interest, rental income and royalties.
After the publication of the 2011 State Budget Law on July 28 2011, it is now explicitly foreseen in the tax law that the payment of services to non-residents is subject to a withholding tax at the rate of 20%.
A permanent establishment in Cape Verde of a non-resident entity is taxed on profits arising from business activities carried out in Cape Verde, basically in the same way as any other entity resident for tax purposes in Cape Verde, such as with head office or effective place of management therein.
The taxable profit is computed according to the local accounting rules, adjusted by tax rules. Cape Verde has adopted a new accounting system ( Sistema de Normalização Contabilística e de Relato Financeiro) System of Accounting Standards and Financial Reporting, by adapting international accounting rules (IFRS), which is force since 2009.
In general, costs are deductible against taxable profits provided they are indispensable to generate income and gains subject to tax or to maintain the productive source, among others costs relating to the production or purchase of any goods or services, depreciation and amortisation.
Value Added Tax (VAT)
The VAT system in Cape Verde closely follows the EU VAT system.
The standard VAT rate of 15% is applicable to the import and sale of goods and services in Cape Verde territory. The 6% reduced VAT rate applies to lodging and restaurants, due to the important role they assume in the Cape Verde’s economy.
Several activities are exempt from VAT, namely banking, financial and insurance transactions and immovable property transfers/ leases.
A new Stamp Duty Code entered in force in 2009. Stamp duty is levied mainly on financial and corporate transactions, and on immovable property transfers. Rates vary from 0.5% to 15%, and apply to bank loans, shareholder loans, share capital, transfer of immovable property, sale of a (going concern) business, rents and notary and registration fees.
A property tax (IUP – Imposto Único sobre o Património) at the rate of 3% is due on the transfer of immovable property located in Cape Verde. Moreover, annually IUP is due by the owner of immovable property at December 31. Capital gains realised on the sale of immovable property, if the selling price exceeds the purchase price by more than 30%, is also due to 3% IUP.
African holding regime
Since 2005, dividends are not subject to taxation, both received by residents or non-residents in Cape Verde (companies and individuals).
Capital gains realised on the sale of shares and other forms of participation in the capital of companies with registered head office or place of effective management in Cape Verde, if owned for at least one year, are not subject to taxation.
Therefore, from a tax point of view, Cape Verde has an attractive holding regime. However Cape Verde is preparing a major reform of its tax system, which will cover, among others, corporate income tax, individual income tax, tax procedures and tax benefits.
Based on the wording of the known legislative project of the corporate tax income code, it is important to note that significant changes may occur, as follows:
Dividends will become subject to taxation at a rate of 10%;
Capital gains on the sale of shares will become subject to taxation. In case of a Cape Verde company owned by a Portuguese holding company, no taxation should occur as the Portugal / Cape Verde tax treaty will provide for protection, as only the state of residence (Portugal) will be allowed to tax capital gains arising from the sale of the Cape Verde company. Portugal should not tax such capital gains based on its current tax regime for holding companies.
However, we note that the date at which the new legislation will enter into force is still unknown.