Special economic zones (SEZ) have been a global trend over the last few decades and instrumental in achieving regional development, creating jobs and attracting foreign investment.
According to the Africa Economic Zones Organization, there were close to 189 operating SEZs in Africa in 2019, while an additional 57 were being implemented in 47 out of the 54 countries that make up the African Continent.
Angola has tried its hand at SEZs to varying degrees of success. The Luanda-Bengo SEZ, created in 2009 not far from the capital, failed to deliver on its promise to diversify the Angolan economy and strengthen its industrial base to an extent. The government is currently transforming it into a free trade zone (FTZ) to double down on its efforts to kick-start the economy.
The Free Trade Zones Act was approved in December 2020, followed by regulations in January 2021, which allows all types of private investment in the FTZs, but is primarily focused on developing the agricultural and industrial sector, labour-intensive industries, high-tech industries with high national added value, that use and transform domestic raw materials and are export-oriented.
Foreign investment operations allowed in the FTZs include the following:
- Introducing freely convertible currency into the national territory;
- Introducing technology and knowledge, if they represent an added value to the investment and can be valued in monetary terms;
- Introducing plant and equipment and other tangible fixed assets;
- Applying the proceeds of loans secured abroad;
- Acquiring commercial or industrial establishments;
- Executing agreements for leasing or exploring land for agricultural, livestock and forestry purposes; and
- Acquiring real property within the FTZs, if the acquisition is part of an investment project.
Foreign investors can invest in the FTZs as follows:
- Transfer own funds from abroad earmarked for industrial, technological, agricultural, commercial or other ventures involving the investor’s ownership and direct operation of the ventures;
- Deposit the funds available in national and foreign currency in bank accounts opened in Angola by foreign exchange non-residents that are allowed to repatriate the funds pursuant to the applicable foreign exchange legislation;
- Transfer credits and other resources that may be used for investment purposes;
- Reinvest the funds;
- Transfer plant and equipment and other tangible fixed assets; and
- Transfer technology and knowledge.
The Free Trade Zones Act points towards possible tax incentives, which have yet to be regulated but could include deductions from taxable income, accelerated depreciation and reintegration, tax credits, exemption from and reduction of rates and taxes, contributions and import duties, deferred payment of taxes and other special measures to be included in the investment agreements proper.
A Tax Incentives Bill was subject to public consultation in December 2020. FTZs seem to be a particular priority of the bill, which would grant the following tax incentives to companies established in the FTZs:
- The final corporate income tax rate levied on commercial, industrial or service products to be exported outside the customs territory would be reduced from 30% to 15% or 8%;
- Profits arising from the operations developed in the FTZs and distributed to the companies’ members and shareholders would be capital gains tax-exempt;
- The capital gains tax rate levied on capital transactions in connection with royalty and interest payments or any other remuneration for services, technical assistance, technology transfer, loans and financing, equipment leasing and full service from third countries to FTZs users would be reduced from 30% to 5%;
- Real estate acquired in the FTZs to promote investment operations would be property tax-exempt; and
- Ownership of real estate in the FTZs to set up the investment’s office and establishment would be property tax-exempt.
The import, export and re-export of goods, capital goods, accessories and other tangible property would also be exempt from customs duties and other charges, save for any fees payable as consideration for the services provided.
- Dividends or profits distributed;
- Proceeds from the investment’s liquidation, including capital gains, after settling any taxes payable;
- Proceeds of indemnities; and
- Royalties or other income connected with the assignment or transfer of technology.
The Free Trade Zones Act and the incentives foreseen in the Tax Incentives Bill are a sign of Angola’s growing largesse relative to other Portuguese-speaking African countries. Although it may take a while to see all regulations approved and enacted, there is no doubt that Angola is very much aware of the important role tax policy plays in stepping up the diversification and recovery of the national economy.
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