Cabo Verde – 2023 State Budget Law proposal: highlight of tax measures

I – R&D tax incentives for companies

A new regime of R&D tax incentives is proposed for companies. It shall apply from 2023 to 2038. The tax incentives foreseen cannot cumulate with any other tax benefits in force.

Deduction to the CIT assessed

CIT (“Imposto sobre o Rendimentos das Pessoas Coletivas” or “IRPC”) taxpayers resident in the Cabo Verde territory and carrying out a commercial, agricultural, industrial or service provision activity as their main activity, as well as permanent establishments in Cabo Verde of non resident entities, are allowed a deduction to the CIT assessed and capped at said amount. The deduction corresponds to the amount of R&D expenses (net of State grants) as follows:

a) Base rate – 40% of the expenses incurred in the tax period concerned; this rate in increased by 15% in case of taxpayers with less than two years of activity that have not benefited from the incremental rate mentioned below in b);

b) Incremental rate – 50% of the added expenses incurred in the tax period concerned with reference to the arithmetic average of the two previous tax years.

The deduction operates in the assessment of the tax year in which eligible expenses are incurred. Any expenses that cannot be deducted due to insufficient CIT assessed can be carried forward for 10 years.

Eligible taxpayers

The CIT deduction is available to the following taxpayers:

•  Taxed under the organized accounting regime;
• Which accounts follow the Cabo Verde GAAP;
• Fulfill their tax obligations electronically;
• Are not subject to indirect taxation methods;
• Which investment project is registered in the single investment one-stop-shop (“Balcão Único de Investimento”);
• Have not held share capital of a company whose activity ceased less than 5 years ago with irregularities in the tax situation;
• Have their tax and social security situation duly regularized.

Covered R&D expenses

For the purposes of the regime:

• Research expenses are those incurred by the taxpayer aiming at acquiring new scientific or technical knowledge;
• Development expenses are those incurred by the taxpayer through the exploitation of results from scientific work, or other scientific or technical knowledge aiming at finding or improving in a substantial manner raw materials, products, services or manufacturing processes;

Eligible expenses

Among other expenses, these are eligible provided that related with R&D activities:

• Acquisition of tangible fixed assets (except buildings and land), created or acquired new, and the proportion of its allocation to R&D activities;
• Expenses with staff with minimum qualification as a level 4 of the National Qualifications Framework, that is directly engaged in R&D activities; these expenses are considered for 150% of the respective amount in case of staff with minimum literary qualification as a level 8 of the National Qualifications Framework;
• Expenses with the participation of managers and members of the board in the management of R&D institutions;
• Operating expenses (remunerations, wages or salaries of the year concerned) up to 50% of the expenses with staff with minimum qualification as a level 4 of the National Qualifications Framework, directly engaged in R&D activities;
• Expenses incurred with the hiring of R&D activities from public entities, entities with public utility status or entities with recognized expertise in the field of R&D;
• Holding share capital of R&D institutions and contribution made to public and private investment funds; in both cases the entities should invest in the equity of R&D or other institutions with recognized expertise in the field of R&D;
• Registration and maintenance of patentes;
• Acquisition of patentes aiming mainly at carrying out R&D activities;
• R&D audits;
• Demonstration actions related to supported R&D projects;
• Attribution of scientific awards to R&D activities;
• Attribution of PhD and post-PhD scholarships.

There is an exclusion from eligibility of the expenses with projects carried out exclusively by third parties through R&D contracts and rendering of services.

R&D activities related to ecological manufacturing of products are allowed an additional 30% deduction.

Other tax benefits

Investment projects carried out by taxpayers exclusively dedicated to R&D activities are also granted:

• Exemption from stamp tax on the borrowing of funds;
• Exemption from property tax (“Imposto Único sobre o Património” or “IUP”) on the acquisitions of real estate exclusively used for the setting up of investment projects;

Import duties at the rate of 5% on the import of materials and equipment used directly in the installation, expansion or refurbishment of facilities not for sale, equipment, machines, appliances, instruments and utensils, as well accessories and separate parts, materials, furniture and scientific, teaching and laboratorial equipment, including software and the respective support means, focused on learning, teaching or used in technical and scientific investigation.

Tax compliance

Tax compliance obligations and the procedures to apply for the tax benefits foreseen shall be covered by separate legislation.

II – Incentive to the reinvestment of profits

There is a proposal to exempt from CIT profits reinvested by technological based companies duly authorized to operate in the Special Economic Area for Technologies (“Zona Económica Especial para Tecnologias” or “ZEET”). This includes any company carrying R&D activities, either internally or in association with third parties, aiming at creating new or improved products, services and processes.

The following are eligible as technological based companies:

• Companies that have invested in R&D an amount equivalent to at least 7.5% of the previous year invoicing: accounting elements demonstrating the invoicing volume and R&D investment volume are required;
• Companies with up to three years of activity, incubated in a certified incubator or an incubator recognized as such by “Pro Empresa”.

III – Tax benefits for emigrants

There is a proposal to exempt from taxation income from corporate bonds and treasury certificates, publicly placed and listed in the stock exchange, subscribed and already held by Cabo Verde emigrants.

IV – Incentives professional activity carried out remotely outside the national territory 

There is a proposal to exempt from tax, for a one-year period, income earned by non resident employees and self-employees who work remotely for entities with domicile or headquarters outside the territory of Cabo Verde. Proof of labor relationship is required. 

It is also proposed that these workers are allowed the same incentives as foreseen for non-habitual residents. It is required that they remain in the country for a period of more than one year.

V – Incentives to the production of renewable energies

An exemption from customs duties shall apply on the import of new and modern equipment and respective accessories to produce renewable energies. This includes solar panels, wind generators and other appliances able to produce energy based on renewable energy sources. Said equipment shall also contribute to improve environmental protection, reduce the national dependency on oil products and foster the use of renewable energy sources.

VI – Exemption from excise duties on the import of four-by-fours vehicles

There is a proposal to exempt from excise duties (“Imposto sobre Consumos Especiais” or “ICE”) the import of four-by-fours vehicles (4x4) for adventure tourism.