The backbone of Angolan taxation is still the colonial tax regime. Many of these taxes survived and are only now being fully replaced. As part of this process, value-added tax (VAT) is now being introduced and implemented in 2019.
Development of Taxation in Angola
In the 1970s, Angolan indirect taxation was primarily levied on imports and the production and/or manufacture of goods by way of a single-stage tax (in contrast to a multi-stage tax, such as EU VAT) referred to as “Consumption Tax.”
With its accession to the EU in 1986, Portugal adopted the common EU VAT system. Other Lusophone countries like Cape Verde and Mozambique also adopted the same approach and introduced VAT codes (each with their own peculiarities) in the 2000s.
Angola and São Tomé and Príncipe continued to maintain a single-stage Consumption Tax code, with various amendments being adopted in recent decades, with Angola widening the tax base of the Consumption Tax to capture the provision of specified services.
Introduction of VAT
With the Angolan tax reform in 2011, the Angolan government determined, under Decreto Presidencial (Presidential Decree) 50/11 of March 15, 2011 (PD 50/11), that the introduction of VAT would be one of the top medium-term priorities for Angola.
Over the past few years the Angolan tax authorities have undergone internal reform in order to be fully prepared to deal with the challenges of the introduction of VAT.
The new VAT Code has not yet been published and its final approval in Parliament is still pending but press and officials have declared that it will enter into force on July 1, 2019.
What to Expect
As opposed to the current tax regime (Consumption Tax), where only specified services are subject to tax, under the new system all services will be subject to VAT as a general rule (with specific exceptions). There has been a lengthy discussion around the tax rate but it will most likely be set at 14 percent. The current Consumption Tax rate levied on services is 10 percent.
The VAT Code will provide for the possibility to deduct the VAT borne by entities on their acquisitions, the reverse charge mechanism on the acquisition of certain services, the need to register in the country for VAT purposes, and several VAT exemptions.
Angolan companies have never dealt with this type of tax and the VAT Code will create different regimes to accommodate different types of taxpayers. A simplified and less cumbersome regime, with no deductions, for taxpayers with a turnover lower than $250,000 will apply side by side with the general regime providing for a monthly obligation of filling returns, and payment of VAT.
A special regime will be put in place for oil and gas companies, which are expected to be exempt from VAT during the exploration and development phase, with possible exemptions, on request, for the production phase of marginal fields.
This will put some pressure on the oil and gas service providers that will quickly be in a credit VAT position. The government intends to channel part of the VAT inputs to a specific “reimbursement” account to deal swiftly with reimbursement requests by taxpayers. Cash accounting VAT rules will be available for specific (small) taxpayers.
Other Relevant Legislation
In parallel with the approval of the VAT Code, several other pieces of relevant legislation have already been, and will continue to be, approved in the coming weeks.
VAT is a digitally controlled tax and a Legal Regime for the Electronic Submission of Taxpayers’ Accounting Elements was recently published. This Regime establishes the mandatory electronic submission of invoicing, accounting and inventory data of taxpayers, as well as the validity requirements of the Electronic Data Processing System.
The Legal Regime is applicable to taxpayers that, in the course of their commercial, industrial or service activity, have an annual turnover or imports value exceeding 50 million Angolan kwanza ($157,000).
In addition, a new Legal Regime of Invoices and Equivalent Documents was published on December 3, 2018. This Legal Regime establishes the rules applicable to the issue, conservation and storage of invoices and equivalent documents, and enters into force in April 2019.
- Companies will need to adjust their invoicing regime in line with the new regulations in order to be fully compliant with the coming obligations;
- Deductions may be compromised if invoicing requirements are not met by suppliers and service providers;
- Smaller taxpayers need to assess if it is preferable to be subject to the simplified regime or to the general regime;
- Certain taxpayers (for instance oil and gas service providers) will have a direct cash flow impact as they will not charge VAT in their invoices but will pay VAT in their acquisitions;
- Consumption Tax is a cash accounting basis tax—“pay when you receive”—and VAT will be due within the last day of the month following the issue of the invoice. This may create financial distress in case of late payments by clients;
- The entry into force of the VAT Code will be a challenge to the authorities, to officials, taxpayers and to individuals—training should be sought where possible;
- Considering that the final wording of the VAT Code is not yet public, our initial advice is to wait for the publication of the Law and then fully analyze the implications of the tax for day-to-day business in Angola.
This article was written on March 22, 2019 and the VAT Code has not yet been approved and published; therefore all information contained herein was obtained from drafts made available for public consultation.
Tiago Machado Graça is an Associate with CMS; he is involved in the development of the African practice of the firm and plays a pivotal role between its international clients and corresponding African law firms.
The author can be contacted at firstname.lastname@example.org