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					ANGOLA
NEWSLEXTTER


GLA
Global Experience, Local Expertise
May 2011
                                         INVESTING IN
                                         ANGOLA TODAY
                                         THE USEFULNESS OF A DOUBLE
                                         TAXATION AGREEMENT
                                          I. INVESTING EM ANGOLA TODAY:                conditions to provide an incentive or,
                                         INTERNATIONAL TAX MANAGEMENT                  at least, not provide a disincentive to
                                                                                       the internationalisation of Portuguese
                                         At times the interest Portuguese              companies, in particular to Angola.
PLMJ - Law Firm                          companies have in the Angolan market
Rogério M. Fernandes Ferreira            has lived alongside the fear that there are   The experience with foreign investment
rogerio.fernandesferreira@plmj.pt        factors that discourage investment in the     in Angola, including the Portuguese
                                         country. In contact with businesspeople       experience confirms, however, that
                                         linked to a wide variety of sectors, we       the tax component is one of growing
                                         have been able to witness on the one          relevance. But, ultimately, the reason
                                         hand, demonstrations of high levels of        why the lack of a DTT is not strictly
                                         motivation and, on the other hand, signs      and in certain areas a disincentive to
                                         of scepticism as to what the virtues of       investment, is related to the fact that the
                                         investing in Angola may be.                   Republic of Angola has a level of taxation
                                                                                       that is governed by some moderation
PLMJ Angola Desk                         Up to this point, there is nothing            in light of the fact that it is a country
Bruno Xavier de Pina                     particularly unusual in this. As in life in   that receives investment and also has
                                         general, one man’s meat is another man’s      precarious levels of development in a
bruno.xavierpina@plmj.pt                 poison. It is normal that issues related      number of areas.
                                         to risk in investment resulting precisely
                                         from a certain level of immaturity that is    The need for income, especially income
                                         to be expected in emerging economies,         over and above what comes from oil,
                                         might be viewed as positive in terms of       could easily lead to a temptation to
                                         competition but, at the same time, seen       “inflate”, for example, nominal tax
                                         by others, this immaturity could be           rates. However, this is not what we see
                                         viewed with scepticism and even take          for the main types of income such as, for
                                         away the desire to invest.                    example, dividends, interest, royalties,
GLA - Gabinete Legal Angola                                                            payments for services and works, or
Sílvia Espírito Santo                    The analysis of the tax component             even the general rate of tax on profits.
silvia.espiritosanto@gla-advogados.com   associated    with    investments    by       The moderation in levels of taxation
                                         Portuguese companies in Angola must           that can be seen in Angola has to be
                                         take into consideration issues such           seen alongside the efforts of Portugal
                                         as the absence, to date, of a double          not to unduly burden companies with
                                         taxation agreement (DTT) between              subsidiaries in Angola. This means that
                                         Angola and Portugal, the levels of            the absence of a DTT, in taxation of
                                         taxation in Angola and also, whether          income and dividends, may turn out to
                                         Portugal - as a country of residence for      be compensated in one way or another.
                                         companies that are internationalising
                                         and an emigrant workforce – has the


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                                                                                                                         May 2011




      II. DIVIDENDS DISTRIBUTED BY                 size of the stake. This means that the       their accounting is done in Angola, or
          SUBSIDIARIES IN ANGOLA                   taxation rate in Angola in this area is in   whether the companies doing the work
                                                   line with the level recommended by the       are resident (or non-resident) or even
    In Angola dividends are taxed as IAC           OECD and, in normal circumstances,           of whether or not the work is sporadic
    (tax on the application of capital)            with what would result form a DTT if         or continuous in nature. In the case of
    at 10% upon leaving Angola, when               such a thing existed.                        services, the absence of a DTT would be
    they are distributed to shareholders.                                                       compensated by being subject to a rate
    Upon arrival in Portugal these same                III. INCENTIVES TO PRIVATE               of tax of only 3.5% or 5.25%. This results
    dividends will also be taxed there as              INVESTIMENT AND DOUBLE                   from the application of the normal rate
    IRC (corporate income tax) as income                 TAXATION MECHANISMS                    of Industrial Tax (35%) to “only” 10%
    of a shareholder resident in Portugal,                                                      or 15% of the value of the contract,
    and this generates double taxation.            The Republic of Angola has a legal           depending on whether the contract is
    In an attempt to reduce a possible             framework that includes a set of laws that   for construction, rehabilitation, repair
    disincentive to internationalisation,          regulate private investment. In addition     or conservation of real estate assets.
    Portugal introduced, under the General         to the Base Law on Private Investment        The type of work determines whether
    State Budget Law of 2007, a mechanism          there is also a law on Tax and Customs       the rate is 3.5% or 5.25%. This amount
    that brought the system for dividends          Incentives to Private Investment (neither    is withheld and paid in full discharge
    coming from East Timor and the                 applies to the oil, diamond and financial    when the service provider is non-
    PALOP countries (Portuguese-speaking           sectors) although as of today the approval   resident. Faced with being subject to
    Africa) into line with the system for          process for the future Investment Law        taxes of between 3.5% and 5.25% in
    internal dividends distributed between         is almost at an end. The granting of         Angola, Portuguese tax law provides a
    companies resident in Portugal. This           tax and customs incentives depends           general economic double taxation credit
    equating of the two systems makes sense        on meeting a number of conditions,           mechanism for IRC which provides that
    because it has the merit of eliminating        more specifically, from falling into one     when income subject to IRC includes
    double taxation on dividends paid              or more sectors deemed to be priority        income earned abroad, the lower of
    by subsidiaries based in Angola to             sectors to the location of the investment    the following amounts can be deducted
    companies resident in Portugal. Once           to consideration of the amount of the        from the taxable income (but only
    certain conditions have been met,              investment involved. However, it must        until they coincide): Income tax paid
    when these dividends are repatriated           be pointed out that, in the event of the     abroad (between 3.5% and 5.25% on
    to Portugal, they are excluded from            granting of such tax benefits in Angola      the value of the contract); fraction of the
    the shareholder’s taxable income               (usually in respect of IAC and Industrial    IRC, calculated before the deduction,
    and property. The conditions for the           Tax equivalent to IRC), the possibility      corresponding to the income that, in the
    application of the rule are as follows: the    of applying the mechanism described          country in question, can be taxed, net
    beneficiary of the profits is subject to and   above that excludes the taxable base in      of costs or losses, directly or indirectly
    not exempt from IRC and the subsidiary         Portugal of the dividends coming from        incurred in earning the said income.
    is subject to and not exempt from an           Angola will be jeopardised. If, on the
    income tax that is analogous to IRC (the       one hand, they would not be taxed in         Having said this, it must be considered
    equivalence of Angolan Industrial Tax          Angola because of the exemption, they        as a positive point that the taxation that
    and IAC to Portuguese IRC is beyond            would, on the other hand, be taxed in        occurs in Angola for which allowances
    question); the beneficiary must directly       Portugal at the normal IRC rate. In this     are to be made in Portugal is only
    have held a minimum stake of 25% of            respect in particular the DTT to be made     between 3.5% and 5.25% of the value
    the capital in the subsidiary for a period     with the Portugal could help.                of the contract. As this taxation, in
    of not less than two years; the dividends                                                   principle, would be lower that the
    must come from profits of the subsidiary       IV. INCOME FROM SERVICES AND                 amount of IRC indicated above, we
    that have been taxed at a rate of not less     WORKS CONTRACTS CARRIED OUT                  can conclude that in Portugal it is
    than 10%; and not result from activities        BY NON-RESIDENTS IN ANGOLA                  possible, on the basis of the mechanism
    that generate passive income including                                                      established for IRC, to fully eliminate the
    royalties, capital gains and other income      In the case of contracts for works and/or    tax charged in Angola on the services or
    from securities (as an example).               services carried out in Angola by non-       works.
                                                   resident undertakings, the conclusion is
    Putting the IAC rate of 10% on the             that, despite the fact there is no DTT,      V. TAXATION OF WORKERS’ INCOME
    dividends in Angola together with the          this could be compensated in certain
    possibility of exemption from IRC in           circumstances. When such services            Among the issues to appear in the future
    Portugal we could draw the conclusion          or works are supplied by Portuguese          DTT will certainly be the taxation of
    that the rules for taxation of dividends       companies deemed to be non-resident          employees’ income. This is indeed an
    ends up being similar to what would have       in Angola, their taxation in Angola          issue of great significance due to the
    resulted from a DTT. That it because the       could be considered moderate as, in          many thousands of Portuguese workers
    OECD’s DTT model recommends that               Angola, works and/or services are taxed      who are residents of Portugal but
    the tax rate to be imposed by the source       under a specific system for taxation         are currently doing salaried work in
    state falls precisely between 15% and          of works contracts and services. This        Angola.
    5% depending on whether or not the             system introduced deduction at source
    shareholder has a holding of up to or          for income from works contracts and          In accordance with the provisions of the
    more than 25%. As can be seen, Angola’s        services paid for by companies resident      CIRS (the individual income tax code),
    tax rate for IAC is 10% regardless of the      in Angola, regardless of whether or not      among other criteria, persons who have


2   GLA, Global Experience, Local Expertise
                                                                                                                                 GLA
                                                                                                      Global Experience, Local Expertise

                                                                                                                              May 2011




                                                  been in Portugal for more than 183 days         VI. CLOSING COMMENTS: THE
                                                  (in a row or separately) are considered             USEFULNESS OF A DTT
                                                  to be resident there as are persons that
    A DTA between Portugal                        have stayed for less time but have, on       A DTT between Portugal and Angola
    and Angola would,                             31 December of this year, a place of         would, without a shadow of a doubt,
    without a shadow of a                         residence in conditions that suggest an      be an extremely useful tool to establish
                                                  intention to maintain and occupy it as       closer cooperation and bring order to
    doubt, be an extremely                        their habitual residence.                    the tax system for investment between
    useful tool to establish                                                                   Portugal and Angola, given the typical
                                                  Now, the vicissitudes inherent to            scope of such an agreement. However,
    closer cooperation and                        the granting of visas, to the family         in light of the innumerable investments
    bring order to the tax                        circumstances of expatriate workers,         that have taken place over the years
    system for investment                         together with the perspectives for           between the two countries, it is
                                                  staying temporarily in Angola, could         important to remember that the current
    between Portugal and                          in many cases lead to meeting the            system exists against a background
    Angola, given the                             criteria referred to above and giving        of the absence of a DTT and of some
                                                  rise to a double taxation situation.         mechanisms to eliminate or alleviate
    typical scope of such an                      Effectively, individuals who meet the        double taxation in respect of certain
    agreement.                                    said requirements should be taxed there      types of income, as is the case with
                                                  on the whole of their income, including      dividends and profits from services and
                                                  any income earned outside the country,       works contracts.
                                                  specifically in Angola.
                                                                                               While in the case of dividends and
                                                  This means that in the absence of a DTT,     services paid from Angola destined for
                                                  this income is subject to double taxation    Portugal the situation is not one of the
                                                  – that arising from the withholding tax in   occurrence of classic double taxation,
                                                  arising from the IRS taxation in Portugal.   there are other areas subject to greater
                                                  In fact, at the moment, a double taxation    exposure including the cases of income
                                                  situation can only be alleviated by the      from salaried employment and other
                                                  application of the unilateral mechanism      types of income such as, for example,
                                                  for elimination of international double      interest, capital gains, pensions and the
                                                  taxation established in the CIRS, in         income of company directors.
                                                  identical terms as for IRC.




    This newsletter was prepared by a
    multidisciplinary team made up of Angolan
    lawyers from GLA – Gabinete Legal Angola
    and Portuguese lawyers from PLMJ. This team
    was brought together under an agreement for
    international cooperation and membership
    of PLMJ International Legal Network, in
    strict compliance with applicable rules of
    professional ethics.




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