Doing Business in Mozambique

Introduction

Mozambique takes a middle position when it comes to doing business, compared to other countries worldwide.

In 2020, it scored 55 in World Bank‘s ease of doing business score on a scale from 0 (lowest performance) to 100 (top performance).

According to World Bank data from 2019, Mozambique is positioned at 138 in a global ease of doing business ranking, but compared to other sub-Saharan countries, it is overall ranked 20th out of 48. Looking at starting a business only, the country ranks 42 out of 48 countries in the region.

Setting up a Business

Business registration

Setting up a business in Mozambique takes about 15-17 days and consists of the following steps:

1.    Reserve a name for the company and obtain a certificate at the One-Stop Shop (Balcão de Atendimento Único - BAÚ) and Legal Entities Registrar (Conservatória de Registo das Entidades Legais)

2.     Sign the incorporation contract and notarize signatures at the One-Stop Shop (Balcão de Atendimento Único - BAÚ) and Legal Entities Registrar (Conservatória de Registo das Entidades Legais)

3.     Payment of registration fees at the One-Stop Shop (Balcão de Atendimento Único - BAÚ) and Legal Entities Registrar (Conservatória de Registo das Entidades Legais).

A bank account in the company's name is required for tax registration purposes for companies with annual sales (or volume de negócios) above MZN 2,500,000, according to the Tax department.

4.     Registration of the company and publication of the company statutes in the official gazette (Boletim da República) at the One-Stop Shop (Balcão de Atendimento Único - BAÚ) and Legal Entities Registrar (Conservatória de Registo das Entidades Legais).

5.     Get a Unique Tax Identification Number (NUIT) and register for taxes at the Tax Department (Repartição de Finanças)

6.     Report the commencement of business at the One-Stop Shop (Balcão de Atendimento Único – BAÚ)

Depending on its sector of activity, a newly-established company needs to submit a notification of commencement of business or has to obtain a business license.

7.     Submit the declaration of the commencement of activity and register all employees with the Provincial Directorate of Labor, Employment and Social Security at the Provincial Directorate of Labor, Employment and Social Security (Direcção Provincial do Trabalho, Emprego e Segurança Social)

The company must notify the beginning of any activity, admission of employees and the schedule of work hours at the Provincial Directorate of Labor.

8.     Declaration of the beginning of activity at the Tax Department (Repartição de Finanças).

For VAT and corporate income tax purposes, the beginning of business activity must be notified at least 15 days before the actual starting date.

9.     Registration of the company and its employees with the National Social Security Institute (INSS) at the National Social Security Institute (Instituto Nacional de Segurança Social, INSS)

The applicant must register the company and those employees who are still not registered with the social security system within 15 days of the start of business activity.

10.  Subscribe to a workers' compensation insurance coverage with an Insurance company

The company must have a group insurance plan (seguro colectivo) covering every employee from workplace accidents and occupational illnesses that are not covered by the Social Security Health System.

Setting up a company includes fees that vary depending on the type of business and the amount of its share capital. Fixed costs include MZN 400 for the name certificate and the notarised signed incorporation contract. Additionally, a registration fee of MZN 1,450 is applied, plus: amounts of the company's capital up to MZN 5 million are taxable at a 0.4% rate, and amounts exceeding MZN 5 million are taxable at a 0.03% rate.

Labour Relations

The Labour Act (Lei do Trabalho/LT 23/2007) concerns legal labour relations between employers and employees in the country, domestic and foreign, of every branch of activity.

Whereas permanent contracts are the rule, fixed-term contracts are allowed only for specific temporary situations. They can be concluded for a period not exceeding two years and may be renewed twice. Exemptions are made for small and medium enterprises with up to 100 employees, which are allowed to contract employees on a fixed-term basis for the first 10 years of their existence, without limitation regarding duration or renewals.

According to the Labour Law, normal hours of work are 8 hours a day and shall not exceed 48 hours a week.

For each month worked, employees receive one paid day off in the first year and 2 days in the second year. From the third year they are entitled to 30 paid days off.

Every year, the government and the representative of the private sector employers and unions at the Employment Consultative Committee (Comissão  Consultiva do Trabalho) negotiate the minimum wage for nine different sectors, one of it being the production and distribution of electricity, gas and water. In May 2021, the minimum wage in this sector in big companies was MZN 8,300.00 per month (equivalent to 113 Euros in May 2021); in small businesses the minimum wage to be paid was MZN 6,760.00 (equivalent to 92 Euros in May 2021).

Work Permits

The contracting of expatriates by national and foreign employers is subject to authorisation by the Minister of Labour, or the entity to which the minister delegates.

Work contracts must be fixed-term and no longer than two years but can be renewed by submitting a new application. Foreigners must also hold a valid work visa and residence permit.

There are three main hiring types:

Quota system

By law, work permits for foreigners are issued in accordance with the following work permit quotas: 5% of all employees, in large companies with more than 100 employees; 8% of all employees in medium-sized enterprises with more than 10 and up to 100 employees; 10% of all employees in small enterprises with up to 10 employees.

Hiring under investment projects

Foreign employees can be hired to a greater extent than under the quota system in investment projects that are approved by the Government.

Short-term hiring

A short-term work permit, which does not fall under the work permit quota system, can be obtained for a period of up to 90 days.  It aims at the execution of punctual, unpredictable work that requires high scientific knowledge or specialised professional technicians. For this type of work permit the payment of a fee is required.

Foreign-exchange transactions

The importation and exportation of MZNs is prohibited.

The central Bank of Mozambique controls all transfers of direct investments and inward and outward payments. While all foreign-exchange transactions are subject to registration, not all require the prior authorisation of the Bank of Mozambique.

Foreign direct investment needs to be registered with the Mozambican Central Bank within 90 days from the date of authorisation by the competent entity, or of the effective entry of the investment amount.

For remittances abroad, an investment and tax clearance certificate from the Ministry of Finance is required and can only be affected through the local banking system.

Central Bank’s pre-approval is required for foreign loan agreements and technical assistance, management services, licensing and royalty agreements and must be registered with the Central Bank.

In the case of projects approved by APIEX (Agência Para a Promoção de Investimento e Exportações), profits may only be remitted abroad where the direct foreign investment has a value of at least MZN 2.5 million and has been duly registered with the Central Bank. In other cases, profits may be remitted provided the investor shows proof of registration of direct foreign investment and payment of profits tax.

For more details on foreign exchange legislation, see: https://www.mlgts.pt/xms/files/site_2018/publicacoes/2020/Doing_Business_MZ_EN.pdf

Taxation

The Value added tax (VAT) in Mozambique amounts to 17%. This applies also for solar panels or other energy equipment.

Company taxes in Mozambique include corporate income taxes, municipal taxes, social contribution taxes, and others.

Enterprises are subject to corporate income tax (Imposto sobre o Rendimento das Pessoas Colectivas/IRPC), which is at 32% of the taxable profit. The IRPC is reduced to 10% for services in the context of public projects that are related to the construction, rehabilitation and production of infrastructures or with the transport and distribution of electricity in rural areas.

Mozambique has tax treaties with countries such as Botswana, Ethiopia, India, Italy, Macau, Mauritius, Portugal, South Africa, United Arab Emirates, and Vietnam.