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GUIDE TO DOING BUSINESS IN AFRICA
Legal Notice: The information contained in this document is provided for general information
purposes only and is, to the best of our knowledge, correct as at January 2013. It does not constitute
legal or other professional advice. Whilst reasonable steps are taken to ensure the accuracy and
integrity of information contained in this document, we accept no liability or responsibility
whatsoever if any information is, for whatever reason, incorrect or corrupted. We further accept no
responsibility for any loss or damage that may arise from reliance on information contained in this
document.
INVESTMENT GUIDE 2013
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TableofContentsBOTSWANA FIRM PROFILE .............................................................................................. 5
COLLINS NEWMAN & CO. ................................................................................................. 5
BOTSWANA COUNTRY PROFILE ..................................................................................... 6
BURUNDI FIRM PROFILE ................................................................................................ 15
MABUSHI CHAMBERS ..................................................................................................... 15
BURUNDI COUNTRY PROFILE ....................................................................................... 16
ETHIOPIA FIRM PROFILE ................................................................................................ 25
TESHOME GABRE-MARIAM BOKAN .............................................................................. 25
ETHIOPIA COUNTRY PROFILE ....................................................................................... 26
KENYA FIRM PROFILE ..................................................................................................... 38
ANJARWALLA & KHANNA ................................................................................................ 38
KENYA COUNTRY PROFILE ............................................................................................ 39
MALAWI FIRM PROFILE ................................................................................................... 52
SAVJANI AND CO. ............................................................................................................ 52
MALAWI COUNTRY PROFILE .......................................................................................... 53
MAURITIUS FIRM PROFILE ............................................................................................. 65
BLC CHAMBERS ............................................................................................................... 65
MAURITIUS COUNTRY PROFILE .................................................................................... 66
MOZAMBIQUE FIRM PROFILE ........................................................................................ 80
FERNANDA LOPES & ASSOCIATES ............................................................................... 80
MOZAMBIQUE COUNTRY PROFILE ............................................................................... 81
RWANDA FIRM PROFILE ................................................................................................. 93
K-SOLUTIONS & PARTNERS ........................................................................................... 93
RWANDA COUNTRY PROFILE ........................................................................................ 94
SUDAN FIRM PROFILE .................................................................................................. 103
OMER ALI LAW FIRM ..................................................................................................... 103
SUDAN COUNTRY PROFILE ......................................................................................... 104
TANZANIA FIRM PROFILE ............................................................................................. 116
ADEPT CHAMBERS ........................................................................................................ 116
TANZANIA COUNTRY PROFILE .................................................................................... 117
UGANDA FIRM PROFILE ............................................................................................... 128
MASEMBE, MAKUBUYA, ADRIKO, KARUGABA & SSEKATAWA ADVOCATES (MMAKS ADVOCATES) ................................................................................ 128
UGANDA COUNTRY REPORT ....................................................................................... 129
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ZAMBIA FIRM PROFILE ................................................................................................. 139
MUSA DUDHIA AND COMPANY .................................................................................... 139
ZAMBIA COUNTRY PROFILE ........................................................................................ 140
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BOTSWANA
Capital City: Gaborone
Currency: Botswana Pula
Official languages: English and Setswana
Government: Parliamentary Republic
President: Lieutenant General Seretse Khama Ian Khama
Population: 2,065,398 (July 2011 estimate) GDP (purchasing power parity): US$ 18,721,606 (2013 estimate) Time Zone: CAT (UTC +2)
BOTSWANA FIRM PROFILE
COLLINS NEWMAN & CO.
Botswana’s fast‐growing and vibrant economy is frequently rated as one of the best business environments in Africa.
Collins Newman & Co has been delivering timely legal advice in Botswana since 1977 and the team has extensive knowledge of the country’s thriving economic climate. A number of the firm’s partners sit on the boards of major banks and on the Main Committee of the Botswana Stock Exchane. the firm has also established relationships with numerous Government Ministries and plays an advisory role to the Bank of Botswana.
Collins Newman & Co. has represented a broad spectrum of financial institutions and commercial state enterprises in many of Botswana’s most significant transactions. The firm strives to deliver sound and clear political perspectives in all areas of Botswana law, ranging from innovative deal structuring to complex commercial litigation, arbitration and dispute resolution. Collins Newman & Co. is consistently ranked as a leading law firm in Botswana by international directories such as Chambers Global and PLC Which Lawyer?
“One of the market leaders in commercial terms” – Chambers Global 2013
Contact Information:
Collins Newman & Co
Dinatla Court, Plot 4863
P.O. Box 882, Gabarone, Botswana
Tel: (+267) 395 2702
Fax: (+267) 391 4230
Email: [email protected]
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BOTSWANA COUNTRY PROFILE
POLITICAL OVERVIEW Botswana is considered to be one of Africa's most stable countries and the continent’s longest continuous multi‐party democracy. The governing Botswana Democratic Party has governed since the country gained independence in 1966. The President is both the head of state and the head of government. Next elections are due in 2014.
According to the 2011 Mo Ibrahim Index of African Governance, Botswana’s government was ranked 2nd
in the continent, and is considered one of the top five African nations in terms of ‘safety and rule of law’, ‘participation and human rights’ and ‘sustainable economic opportunity’.
ECONOMIC OVERVIEW Since independence, Botswana has consistently been one of the world’s best performing economies. Botswana has transformed itself from a chronically poor country to a dynamic, market‐orientated economy encouraging private enterprise.
In addition to political stability, sound management and fiscal discipline, the diamond industry has been responsible for much of Botswana’s economic expansion. Diamond mining currently accounts for one third of GDP and over 70% of export earnings. Efforts are being made to diversify the economy and consumer services, real estate, financial services and tourism are all regarded as important emerging sectors.
REGULATORY ENVIRONMENT Botswana displays a strong openness to foreign investment and trade, with a straightforward and transparent regulatory environment promoting competitiveness and flexibility. In the 2012 Index of Economic Freedom, Botswana is ranked as the 33rd freest economy in the world, and the 2nd freest out of 46 countries in sub‐Saharan Africa. It ranks well above regional and world averages.
Several attempts have been made to diversify the economy away from diamond production and attract foreign investment. These include the introduction of competitive corporate tax rates (tax rates remain among the lowest in Southern Africa) and the streamlining of the application process for business ventures. Botswana’s independent judiciary provides strong protection of property rights and foreign exchange controls were abolished in 1999, allowing the repatriation of profits and direct investment from Botswana without restriction.
Foreign investors must register a company in Botswana in order to invest and licences are provided under the terms of the Trade Act [CAP 43:02]. Some specialised businesses such as banking, insurance e.t.c, are licensed by the regulators of those specific industries. Bureaucratic procedures are generally streamlined and open.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Botswana is a member of the World Trade Organisation (WTO), the African Caribbean Pacific‐European Union Partnership Agreement (ACP‐EU), the Southern African Global Competitiveness Hub, the Southern African Customs Union (SACU) and the Southern African Development Community (SADC).
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Botswana has concluded double taxation agreements with Barbados, Mozambique, India, Namibia, South Africa, the United Kingdom, Sweden, Mauritius, Zimbabwe, France, Lesotho, Swaziland and the Seychelles.
Double tax agreements with Russia, Belgium, Malawi, Tanzania, Zambia, China and Luxembourg are awaiting ratification.
INVESTMENT PROMOTION
Institutions governing investment promotion The Botswana Investment and Trade Centre (BITC), which is a merger between Botswana Export Development and Investment Authority (BEIDA) and International Financial Sector (IFSC), is an autonomous private sector led organisation mandated by an act of Parliament to encourage, promote and facilitate the establishment of export‐orientated enterprises, and work with the Government of Botswana to ensure that the country has a conducive investment climate.
BITC enables investors in the manufacturing and services sectors to secure clearances and approvals in the shortest possible time. These include licenses, work and resident permits, visas, utility connections and infrastructural facilities such as land and factory space. After company start up, BITC continues to provide services addressing any problems encountered.
The granting of investor support from BITC is based on whether the proposed project is in line with the government’s diversification plans, contributes to the growth of a priority sector showing high growth potential, and provides employment and training opportunities to Botswana’s citizens.
Investment is also encouraged through the following:
• National Development Bank • Citizen Entrepreneurial Development Agency (CEDA) • Botswana Development Corporation (BDC)
Investment incentives Incentives for manufacturing industries include:
• A charge as per the Manufacturing Order issued by the Minister until the time limit specified in the order N
• o foreign exchange controls • Importation of raw materials, machinery and equipment is duty free • Customs duty draw back facility • Industrial rebate concessions • Companies securing development approval order can get a tax holiday and special treatment of
capital expenditure
Companies certified by BITC have additional incentive:
• A corporate tax rate of 15% • Exemption from withholding taxes in Botswana • Exemption from capital gains tax in Botswana • Credits for withholding taxes levied elsewhere
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• Access to Botswana's Double Taxation Treaty network
The Minister of Finance may also issue an order granting additional tax relief to any project which he considers beneficial to the economic development of Botswana.
TAX
Income tax A company is tax resident if it is incorporated or managed in Botswana. Corporate income tax is levied on taxable Botswana source income of all companies, with the exception of tax exempt entities such as pension funds and charities. Foreign source dividends and interest are deemed to be from a Botswana source and are taxable on accrual. Business profits are taxable when remitted to Botswana. Branches of foreign companies are liable on the same basis as resident companies but these companies are subject to a single tax rate of 22%.
The corporate income tax rate is 22% (15% for manufacturing and BITC companies).
Withholding tax All dividends paid by a resident company to a resident or non‐resident are subject to a withholding tax of 7.5% on the gross amount paid. Additional Company Tax (ACT) will not be carried forward if it was not utilised before 30 June 2011. If declaration was made before 30 June 2011 a resident company incurs no additional tax on the distribution of profits, provided the withholding tax does not exceed the company's ACT liability.
Interest paid to a non‐resident is subject to a 10% withholding tax while interest paid to residents is subject to a 10% (on excess of P 1,950.00 per quarter) tax. The withholding tax on royalty payments to non‐residents is 15%. Withholding tax on interest and royalty payments may not be set off against the corporate ACT liability.
Capital gains tax Capital gains tax is regulated in terms of the Income Tax Act which provides that gains on the sale of shares, debentures and immovable property are taxable at normal corporate rates. A 25% allowance is permitted in the calculation of capital gains on the sale of shares. Capital gains from the sale of shares listed on the Botswana Stock Exchange are exempt from tax, as long as the shares are held by the general public.
Capital losses may only be set off against capital gains in the year incurred and the immediately succeeding year. Thereafter, the loss may not be set‐off.
Other Tax Property tax is charged on developed land although tax holidays may be granted for new buildings and those located in specified development areas.
Customs and Exercise Duty is payable at the rate of 10% of the value of taxable goods and services supplied in or imported into Botswana. Exports and the supply of certain specified goods and services are zero rated.
Value Added Tax is charged on all taxable activities in Botswana at the rate of 12%.
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Withholding tax (PAYE) is deductible from the earnings of the employee by the employer, for which the employer is required to be registered for, with the Botswana Unified Revenue Service. An employee’s earnings include: accrued salary, wages, leave pay, commission and bonus pay.
Transfer pricing and thin capitalisation There are no transfer pricing rules or thin capitalization requirements (except with respect to mining companies).
Stamp and transfer duty There is no stamp duty or capital duty on the purchase, issuance or sale of securities. Transfer duty is levied on the transfer of immovable property at a rate of 5% on property other than transfers of agricultural land to non‐citizens at a rate of 30% and with the approval of the Minister of Lands and Housing.
The first BWP 200,000.00 is of the purchase price on immovable property is exempt from transfer duty.
Double tax treaty with Mauritius Yes
EXCHANGE CONTROL Botswana has no foreign exchange controls in place. Investors are allowed the option to operate foreign currency bank accounts within the country. There are no restrictions on non‐residents holding shares in companies listed on the Botswana Stock Exchange.
IMPORTS AND EXPORTS Botswana is a member of the Southern African Customs Union (SACU), an economic grouping free of tariffs that also includes South Africa, Namibia, Lesotho and Swaziland. There is free movement of goods within SACU but goods must be certified as of Botswana origin. To qualify for a certificate of Botswana origin at least 25% of the production cost must be represented by materials produced and labour performed in the country.
ACCOUNTING PRINCIPLES Botswana applies international accounting standards (IAS) and international financing reporting standards (IFRS).
INDUSTRIAL RELATIONS Botswana’s employment regulations are relatively flexible. The Employment Act [CAP. 47:02] provides basic guidelines for employment in Botswana. The legislation sets minimum wages, length of the work week, annual and maternity leave, hiring and termination. The country adheres to International Labour Organisation (ILO) conventions protecting worker rights and the Industrial Relations Division of the Ministry of Labour and Home Affairs is responsible for ensuring compliance with these conventions.
All Botswana citizens except those working in the Botswana Defence Force, police, and prisons are permitted to participate in trade unions.
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Work and resident permits are required for expatriates seeking employment in Botswana. Work permits are generally granted only when local citizens do not possess the necessary expertise, and the granting of such permits to expatriates may be made contingent upon establishment of demonstrable “localization” efforts. The work and residence permits of senior executive expatriates of Botswana IFSC accredited companies are fast tracked.
REAL PROPERTY The constitution prohibits the nationalization of private property and the independent judiciary provides strong protection of property rights.
CORRUPTION Administrative corruption is low ‐ the 2012 Corruption Perception Index compiled by Transparency International, ranked Botswana 30 out of 178 countries. Botswana has specific anti‐corruption legislation, a dedicated enforcement unit and significant criminal penalties for acts of corruption. The major corruption investigation body is the Directorate on Corruption and Economic Crimes (DCEC). Overall, DCEC is regarded as an active and effective organization.
COMPETITION AND CONSUMER PROTECTION Competition is regulated in terms of the Competition Act, [CAP 46:09] which governs inter alia mergers and acquisitions, market inquiries which may be conducted by the competition authorities, prohibited practices such as price fixing, market allocation, bid rigging, restraints on production or supply, collusion and abuse of dominance.
The Consumer Protection Act [CAP 42:07] provides for the protection of consumers by means of investigation, prohibition and control of unfair business practices.
LEGAL FORMS OF INCORPORATION IN BOTSWANA The principal business entities are the public or private limited liability company, public or private company limited by guarantee, close company, the sole proprietorship, the partnership and a branch of a foreign company.
The Registrar of Companies and Intellectual Property, part of the Ministry of Trade and Industry, is responsible for company incorporation, registration of business names and protection of intellectual property rights.
A private company cannot have more than 25 shareholders and must have a minimum of one shareholder and one director, who must be ordinarily resident in Botswana. There is no restriction on the number of shareholders in a public company but there is a minimum requirement of 2 directors and at least one of the directors has to be ordinarily resident in Botswana. Audited financial statements must be prepared within five months and seven months of the year end of a public and private company, respectively and filed with the Registrar of Companies. A qualified secretary must be appointed.
The World Bank Group rates Botswana 54th out of 183 economies in terms of the ease of doing business. The table below provides a summary of the procedures and the associated completion time and cost for setting up a standardised company.
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Procedure Time to
complete
Cost to complete
1 Select and reserve company name 10 days BWP 20
2 Sign the declaration of compliance of statutory requirements for incorporation before a commissioner of oaths
1 day BWP 75
3 Return the complete statutory return to the Registrar of Companies about re‐allotment, directors, auditors, company secretary, and registered officers
1 day BWP 300 by self, and a fee of BWP 2000 where registration is done by an agent
4 Register the company with the Registrar of Companies at the Ministry of Commerce and Industry
2‐3 weeks BWP 360 (registration of constitution)
5 Complete application forms for Trade licence
6 Obtain an approval of the working conditions after an inspection of company premises. As part of the licence application process the company's premises will be inspected by the health and environmental authorities to ensure compliance with minimum standards.
2 days No charge as this procedure is done by the municipal authorities (called
Councils)
7 Advertise the intention of applying for a license in the official gazette
3 weeks BWP 80
8 Obtain trade licence from the , Ministry of Trade and Industry; or obtain a trading license from the Council
4 weeks BWP 100 for industrial licence; BWP 60 for trade license
9 Register for Corporate Income Tax number with the Botswana United Revenue Services and obtain the approval from the Botswana Unified Revenue Services for the appointment of a public
officer who is in charge of tax return
10 days No charge
10 Register for VAT with The Botswana Unified 10 days No charge
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Revenue Services
11 Register employees for work injury insurance
7 days No charge
INDUSTRY SECTORS
Agriculture Agriculture meets only a small portion of food needs and contributes a very small amount of GDP (an estimated 2.6% in 2011). However despite its low significance to GDP, agriculture remains an important part of the economy as a large portion of the population lives in rural areas and is dependent on subsistence crop and livestock farming.
Financial and banking services Botswana's competitive banking system is one of Africa’s most advanced and it contributes to 7.4% of the GDP. The Commercial banks in Botswana are small by international standards. However, they are competitive and rapidly growing. Currently, there are seven commercial banks, namely, Barclays Bank, Standard Chartered Bank, Stanbic Bank, First National Bank, Bank Gaborone, Bank of Baroda and Capital Bank.
The government is involved in banking through state‐owned financial institutions and a special financial incentives programme that is aimed at increasing Botswana’s status as a financial hub. Credit is allocated on market terms, although the government provides subsidised loans.
Botswana established the IFSC in 2003 to establish and develop the country as a centre for cross border financial and business services into Africa. In 2012 IFSC was merged with BEDIA, into BITC, which has since taken over the functions of IFSC.
The majority of financial services are in the areas of international banking, funds administration, corporate treasury management and captive insurance operations.
Global standards in the transparency of financial policies and banking supervision are generally adhered to in Botswana.
Energy The state‐owned power company, Botswana Power Corporation, imports approximately 75% of the country's energy needs from South Africa. The remainder of the country's electricity requirements are produced by Botswana's single power station, Morupule Power Station. The authorised expansion of power generation capacity at Morupule Power Station is currently ongoing.
Manufacturing The manufacturing sector accounts for an estimated 4.2% of GDP. As most of Botswana's exports are in unprocessed form, the government has sought to encourage the establishment of processing and manufacturing companies and has set up agencies such as BITC to encourage the export of goods manufactured within the country.
The BDC promotes industrial development through project identification, joint venture partnerships and site developments for small manufacturers.
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Mining Diamond mining accounts for approximately one‐third of Botswana's GDP and approximately 70% of its export earnings and 34.7% of the country’s GDP. However, the industry is capital intensive and accounts for less than 5% of private sector employment. Mining activities, although not as extensive, are also conducted in respect of coal, copper, gold, nickel and soda ash. Coal‐bed methane gas has been discovered in the north‐eastern part of the country; however, development of these gas fields has been slow.
Telecommunications The Department of Telecommunications and Postal Services was established to develop and implement infrastructure development strategies for the telecommunications and postal sectors. A major role is to develop the national fibre backbone infrastructure and establish international connectivity with the rest of the world through projects such as the West Africa Festoon Fibre System (WAFS) and the East Africa Sea Cable System (EASSY).
INTELLECTUAL PROPERTY Protection of intellectual property rights in Botswana has improved significantly. Botswana is ranked 44th
out of 125 countries in the 2012 International Property Rights Index, second only to South Africa among sub‐Saharan Africa countries.
Botswana is a member of the World Intellectual Property Organisation (WIPO) and party to the Berne and Paris Conventions, The Hague Agreement, the Madrid Protocol, and Patent Cooperation Treaty. The Registrar of Companies and Intellectual Property, is responsible for the protection of intellectual property rights.
DISPUTE SETTLEMENT The Botswana legal system is largely based on Roman‐Dutch law. The Constitution provides for an independent judiciary and the legal system is sufficient to enforce secure commercial dealings. During the past two years, the judiciary has brought down the average time to conclude civil cases from more than 20 months to fewer than 11 months, and improvements continue to be made. Residents and non‐residents have equal access to the judicial system.
Botswana is a member of the International Centre for the Settlement of Investment Disputes and the Multilateral Investment Guarantee Agency. It consequently accepts binding international arbitration of investment disputes.
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BURUNDI Capital City: Bujumbura
Currency: Burundi Franc (BIF)
Official languages: Kirundi and French
Government: Presidential representative democratic republic
President: Pierre Nkurunziza
Population: 10,216,190 (July 2011 estimate)
GDP (purchasing power parity): US$ 3.397 billion (2010 estimate)
BURUNDI FIRM PROFILE
MABUSHI CHAMBERS Burundi’s economy is in the early stages of critical development efforts to enhance regulatory efficiency, encourage investment, diversify markets and liberalize trade.
Mabushi Chambers offer clients valuable insights into the opportunities and challenges of conducting business in Burundi’s evolving economic climate. Local, regional and multinational clients regularly instruct the firm in a variety of complex domestic and cross‐border transactions.
Established by the late Charles Mabushi in Bujumbura in 1979, the firm has been operating as A&JN Mabushi from 1996 until 2013 when it changed its name to Mabushi Chambers. The firm’s extensive knowledge of Burundi’s legal framework, its strong linguistic capacity and it broad linkages across the East Africa Community are all highly regarded. The firm is considered a leading player in Burundi’s legal market with a reputation for offering quality, commercially viable advice. Chambers Global recognizes Mabushi Chambers as Burundi’s leading legal law firm.
“I would go to them first. They are the best in my opinion” – Chambers Global 2013
Contact Information
A : 2nd FloorU‐COM House
Place de l’Indépendance
P: B.P 1972 Bujumbura
T: (+257) 22217475
F: (+257) 22217476
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BURUNDI COUNTRY PROFILE
POLITICAL OVERVIEW Burundi is a presidential representative democratic republic based upon a multi‐party state. The President acts as both the head of state and head of government and serves for five year terms. Two vice‐presidents assist the President.
The legislative branch in Burundi is comprised of the National Assembly and Senate. Members of the National Assembly are elected by popular vote to serve five year terms and representation in the Assembly must be consistent with 60% Hutu, 40% Tutsi, and 30% female membership.
The next elections are scheduled for 2015.
ECONOMIC OVERVIEW Burundi continues to rebuild its economy after a civil war that lasted nearly twelve years. Political stability and the end of the civil war have improved economic activity and aid flows. The country has made substantial progress in the implementation of structural reforms in the management of public finance and measures to protect the Central Bank and the Treasury. These reforms should continue, especially the liberalisation of the coffee sector and the development of the energy sector.
Burundi's economy is based predominantly on agriculture which contributes to 36.4% of the country’s GDP. Burundi's primary exports are coffee and tea, which account for 70% of foreign exchange earnings, though exports are a relatively small share of GDP. Burundi's export earnings and its ability to pay for imports rest primarily on weather conditions and international coffee and tea prices.
In terms of 2012 gross domestic product by sector, Burundi’s economy consists primarily of agriculture (31.1%), industry (21.5%) and services (47.1%).
The development of economic relations with new partners has opened up new opportunities that will help Burundi to diversify its markets and sources of aid. China stands out as the country's key emerging partner.
REGULATORY ENVIRONMENT Burundi’s general attitude towards foreign investment is increasingly welcoming. Considerable efforts have been made to create an environment conducive to domestic and foreign private investment. The recently amended Investment Code aims to attract and reassure investors.
The 2013 Index of Economic Freedom ranked Burundi 34th out of 46 countries in sub‐Saharan Africa. Its overall score is 0.9 point better than last year, mainly because of a notable improvement in business freedom and a small gain in freedom from corruption Business environment is more and more fostered by the Government and, progress is being made in trade freedom, monetary freedom, and investment freedom.
Burundi has adopted a trade liberalization policy. The Government has abolished quantitative restrictions to imports and instituted the freedom of fixing prices. Furthermore, the Government has reserved the right to negotiate with the private sector on the price structure of select strategic products for the national economy, in line with the World Trade Organisation (WTO) and COMESA rules and regulations.
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Further efforts to create an investor‐friendly environment include significantly reducing the paperwork necessary for creating a business.
The Burundian Government has no overall economic or industrial strategies that discriminate against foreign investors, nor are there any specific limits on foreign ownership or control of enterprises. There are no requirements that investors purchase from local sources or export a certain percentage of their output, or only have access to foreign exchange in relation to their exports. There is also no requirement that nationals own shares in foreign investments; that the share of foreign equity be reduced over time; or that technology be transferred on certain terms. However, significant challenges, including corruption, persist.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Burundi is a member of the African Union (AU), the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), the Economic Community of the Great Lakes Countries (ECGLC), the Economic Community of Central‐African States (ECCAS/CEEAC), the Nile Basin Initiative, and the World Trade Organisation (WTO).
Burundi has entered into bilateral investment treaties with Belgium and Luxembourg, Germany, Mauritius, UK, Kenya, Comoros and Netherlands. Double tax treaties with some East African Community countries, Common Market for Eastern and Southern Africa countries, Egypt and France are in the process of negotiation.
INVESTMENT PROMOTION
Institutions governing investment promotion The challenges of Burundi’s business climate mean the private sector is small and relatively underdeveloped. However, tremendous efforts have been devoted to investment’s promotion. Procedures, time and costs related to business registration have been significantly reduced for the benefit of the investor as evidenced by the last report thereon produced and made official on May 29, 2012 and sent to the World Bank and the International Finance Corporation for evaluation in the Doing Business Report 2013. Another important reform to be highlighted is the establishment of a one stop centre for business registration (guichet unique pour la création d’entreprises), allowing company registration via a single procedure and within just 24 hours.
The Doing Business Report 2013 ranks Burundi the fifth in the world top ten reformers of the year and 159th out of 183 economies assessed. It is a very encouraging ranking, which reflects the commitment and determination of the country to always move forward in improving the business climate.
Under the Investment Code, the government created the Burundi Investment Promotion Authority in October 2009. The Authority is professionally and financially independent and its main objectives are to inform and assist potential investors, to ensure that new laws and regulations created to benefit investors are being upheld, and to promote reforms aimed at improving the business climate. One year after its establishment, the new agency had issued investment authorisations for 60 projects totalling BIF 220 billion (approximately USD 177 million) ‐ an unprecedented level of activity. The main investments have been in tourism, agribusiness, transportation, light assembly plants and information and communication technology. The API has now two years of existence, but has already authorized the
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creation of 180 companies that are already operational. More than 10,000 jobs were created by the said companies.
Investment incentives The main business incentives are contained in The Investment Code. Amendments adopted in August 2009 offer the following:
• Any new investment automatically entitles to following advantages:
The acquisition of buildings and land, necessary for the completion of the operation is exempt from transfer duties;
Investors are entitled to deduct as tax credit, a proportion of 37% of the amount of depreciable assets invested in the business. These assets must be used in the business for at least five years. The investment tax credit is deducted from the acquisition value of assets invested, and from the basis for depreciation;
If the assets that gave rise to a tax credit for investment is sold before the end of five years, except as a result of a natural disaster, the tax credit for investment born, must be repaid to the tax administration.
The amount of the tax credit is paid back plus interest for late payment, applicable for the recovery of taxes from the date of the attribution of credit to the taxpayer's tax account until the date of the sale of assets;
For new businesses, the tax credit arises at the time of making the investment; For expansion or rehabilitation of existing activities of a company, the tax credit arises in the same manner as for new enterprises. However, it is limited to the extension or the rehabilitation, provided that these activities are easily identifiable and leave no doubt as to the mixed uses between existing activities and those of the extension or rehabilitation; the extensions and rehabilitation activities to produce goods and services qualify for the tax credit;
The investor also benefits from a reduced tax rate on profits as follows:
• 2%, if he uses a number of Burundian workers Burundian between 50 and 200. • 5%, it employs over 200 Burundian workers in Burundi.
The staff considered at this point is the one receiving remuneration subject to tax on wages.
The recent investment code removes all the procedures under the old code which conditioned the granting of benefits to investors with the opinion of the Inter‐ministerial Commission of Investments and a decree issued by the Council for approval of Ministers. In fact this code was the source of delay in processing cases while the new code devotes a certain level of automaticity in the granting of benefits by significantly reducing the administrative path of the investor.
TAX
Income tax There is no distinction made between personal income tax and corporate income tax. The bases for taxation are rental income, investment income and business income.
There are three types of business income: income by business enterprises, wages and income by self‐employed persons. Generally, taxable profit is calculated on income derived from all activities, including
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capital gains. For resident companies and foreign branches, the applicable tax rate is 35%. Exporters of coffee and tea are allowed a 50% reduction off this rate (i.e. the applicable rate is 17.5%).
The minimum rate of taxation is 1% of annual turnover, even where losses are made in the financial year.
Withholding tax Investment income is income derived from corporate entities in Burundi, such as dividends, interest and other similar distributed profits. The taxable amount includes the capital gain in the share property and hidden reserves on condition that these gains have been realized. The tax rate imposed is 15% and is levied in the form of a withholding tax.
Where investment income is distributed to another business entity, irrespective of its legal status, 50% of the distributed amount is taxed as business income. This regulation does not apply with respect to reinvestment of profits. Certain exempted enterprises (typically exporters of goods such as coffee and tea) do not pay tax on distributed dividends.
Capital gains tax Capital gains are taxed as part of income by business enterprises at a rate of 35%.
Other tax Rental income tax is based on a tax schedule with tax brackets ranging from 20% to 60%. Rental income is defined as all net revenue from the rental of buildings and land in Burundi irrespective of the owner's residence in Burundi or elsewhere. The tax is calculated on the annual rental income, less 20% which represents deductible rental charges.
Value added tax is payable at the rate of 18% and a sales tax of 18% is applicable to purchases made.
Transfer pricing and thin capitalisation Burundi does not have specific regulation regarding transfer pricing, although there are some inspections made in the context of the value of imported goods.
Burundi does not have specific regulation on thin capitalization.
Stamp and transfer duty Transfer duty for real estate transactions is 6% of the market value of the sold property and is supported by the seller. It is worth mentioning that notwithstanding the price declared by parties in the sale contract, an official valuation of the sold property is carried out in order to determine the market price.
Double tax treaty with Mauritius No
EXCHANGE CONTROL The liberalization of Burundi’s exchange control system was started by the Central Bank in May 1992 and completed in December 2006. The Central Bank is responsible for holding and managing foreign exchange reserves and has the power to buy or sell gold and enact regulations on foreign currency transactions. Access to credit depends on the bank or financial institution. With the liberalization of exchange control, banks are now free to fix interest rates.
Burundi’s new Investment Code allows completely free access to foreign exchange for investment remittances. Whilst there are no regulatory barriers to obtaining foreign exchange, much depends on
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availability within Burundi’s Central Bank. Moreover, there is no stated legal limit on the inflow or outflow of funds for remittances in profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.
IMPORTS AND EXPORTS Burundi's primary exports are coffee and tea, which account for 90% of foreign exchange earnings, though exports are a relatively small share of GDP. The dependence of the export sector on a single commodity has made the economy vulnerable to upswings in prices on the international market.
Burundi has joined the East African Community and is lowering its tariffs to bring them in line with other EAC member countries.
ACCOUNTING PRINCIPLES Burundi’s accounting principles meet international relevant standards. An independent organisation of accountants has been created and is fully functional. All enterprises and tax payers are obliged to comply with the national accounting system and to have their annual tax returns drafted and submitted by certified accountants.
INDUSTRIAL RELATIONS Burundi has signed International Labour Organisation (ILO) conventions protecting workers’ rights. Industrial relations are generally conducted according to international standards that allow for collective bargaining and freedom from reprisal against employees who engage in union activities. However, existing labour regulations are not always consistently enforced.
REAL PROPERTY A new land Act has been enacted on August 9th, 2011. Currently access to, transfer or mortgage of land is done through a centralized public office and notary intervention is required for all estate transactions.
Up to very recently, only land areas situated in urban zones were registered; land areas outside urban zones remained unregistered. However, the situation has changed and communal land services have been installed in some regions of the country as pilot projects. The role of such services also called, land tenure office (guichet foncier in French), is to create a link between the cadastre service (remote and expensive), and the lack of legal certainty. The land tenure service is considered a "new" municipal service, accessible to all, closer to the people and democratic.
The ultimate goal being of course that the rural population register their land, to land tenure office which issue the communal “land certificates," is to secure the farmer’s rights.
According to the investment code, free access and use of land is allowed to foreign investors without any national discrimination.
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CORRUPTION Burundi has a number of laws and regulations prohibiting corrupt practices such as bribery, nepotism, embezzlement and preferential hiring and promotion. Giving or receiving bribes is a criminal act punishable by six months to several years in prison depending on the scale of the finances involved.
Burundi is a signatory of the UN Anti‐Corruption Convention and the OECD Convention on Combating Bribery. Since joining the East African Community in 2007, Burundi has also been a member of the East African Anti‐Corruption Authority. No complaints have been lodged by foreign firms against the Government of Burundi under any of these agreements to date.
However, corruption in Burundi remains pervasive. The country ranks 165th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2012. The President has expressed his commitment to lowering corruption: In August 2010, a zero tolerance policy for corruption was announced and the Ministry of Good Governance is developing a plan to battle corruption at all levels.
The Government of Burundi’s Anti‐Corruption Brigade is responsible for enforcing anticorruption legislation, but has limited capacity, resources and jurisdiction. There is no evidence of any particular bias for or against foreign investors in the enforcement of anticorruption statutes.
COMPETITION Burundi adopted competition legislation in March 2010 but the regulatory authority, the Competition Commission, has yet to become operational.
LEGAL FORMS OF INCORPORATION IN BURUNDI Procedures for incorporation of companies in Burundi have recently been significantly reduced and centralized. A new Company Act was enacted on May 30, 2011.
In previous years, it was required to complete 32 steps or procedures up to 32 days and 500,000 FBu in order to create a business. Today, within a single day, and with only 42,000 FBU, it is possible to create a business. This was possible through the establishment of a single window or a One Stop Center integrating: API (The Investment Promotion Agency), the Commercial Court (Office of the Registrar General Unit) and Burundi Revenue Authority services.
To register a local enterprise or a foreign subsidiary, API provides a quick and efficient registration service allowing you to have your business incorporated within 24 hours. This process involves simultaneously obtaining the certificate of incorporation (business registration) and a Tax Identification Number (tax registration).
Practically saying, in order to complete company registration, the following was required:
a) Filling and signing standards application forms: This can be made at API, and in just 20 minutes. b) Obtaining the Certificate of company registration: The file is processed within one day by API
services upon payment of 41,000 Fbu. c) Obtaining the Tax Identification number: The request is processed within one day (at the same
time that the request relating to the Certificate of company registration) upon payment of 10,000Fbu.
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d) Opening a bank account: This will take a half day at the bank of investor’s choice, and there is no longer a minimum deposit required for starting a business. The minimum deposit will vary just following banks.
INDUSTRY SECTORS
Agriculture Agriculture forms the backbone of the country's economy and accounts for approximately 32% of GDP. Burundi’s principal crops are coffee and tea and these contribute nearly 90% of the country's exports earnings. The Government of Burundi has attempted to attract private investment into coffee production and processing: Producers receive normally technical support from the State but now the coffee sector in Burundi is being privatized, that is to say that the bulk of activities are provided by private sectors. (There are private producers, millers, processors, exporters) It is the private sector who masters every link in the chain. The State is concerned solely with the regulation via ARFIC (Public Authority for Regulation of the Coffee Sector). Otherwise the rest is done within INTERCAFE Burundi, a private entity bringing together the various stakeholders in coffee sector at national level.
Other crops such as corn, sorghum, sweet potatoes and bananas are also produced (mainly as subsistence farming).
Financial and banking services Burundi’s formal banking sector is small in size and remains at an early stage of development. Formal financial services mainly cater for Burundi’s small elite of wealthy business people and government officials. The majority of Burundians are unbanked, relying on microcredit and informal lending.
Commercial banking is dominated by the state, and facilities are located primarily in urban areas. The central bank is the Bank of the Republic of Burundi (Banque de la République du Burundi, (“BRB”)). While there are no restrictions on foreign investors’ access to local credit, the resources in the local market are limited and long‐term capital is largely unavailable.
However, there have been several initiatives to improve the banking sector, including opening the economy to foreign banks. The country has experienced an increase in new products and technology within the financial sector, including telephone and internet banking.
Energy The Ministry of Mines, Directorate of Energy is responsible for the energy sector within the country. REGIDESO (Regi des Distribution d'Eau et a'Electricite), the national power authority, owns all the country's power plants, excluding those below 150kW, and is responsible for power distribution in urban areas.
The Government is promoting peat production and is fostering the development of renewable energy resources, such as solar electricity and biogas.
Manufacturing Most secondary sector operations concern the processing of agricultural products and light consumer goods such as blankets and other textiles, cigarettes, shoes, and soap.
Mining There is potential wealth in petroleum, nickel, copper and gold, and although the mining and energy sectors have recorded positive growth in the years following 2009, these resources remain largely under‐
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exploited. It should be noted, however, that China and Qatar have expressed interest in investing in mining in Burundi.
A UK‐based company has undertaken a seismic study of Lake Tanganyika during oil exploration in Burundi.
Telecommunications There is a lack of telecommunications infrastructure in Burundi. The country’s telephone density is one of the lowest in the world. The telephone system is a sparse system of open‐wire, radio‐telephone and low capacity microwave radio relays. Cellular telephone usage is increasing but uptake and penetration is generally slow. With regard to internet network, It is important to note that since the end of last year, the construction work of the fibre optics national backbone have been initiated and are ongoing throughout the country.
INTELLECTUAL PROPERTY Burundi is a signatory to a number of international agreements on patents and intellectual property, including the World Intellectual Property Organisation (WIPO), the Paris Convention and the Agreement on Trade‐Related Aspects of International Property Rights (TRIPS). However, given Burundi’s subsistence level economy, the intellectual property regime is largely underdeveloped.
A new intellectual property law was enacted in 2007. Although it is compliant to international standards, on a practical level, the implementation of this law is still poor and enforcement measures are lagging behind.
DISPUTE SETTLEMENT The Burundian legal system is largely based on German and Belgian civil codes and customary law. The constitution guarantees the independence of the judiciary. Judges are appointed by the executive branch.
Commercial and investment disputes are normally settled by commercial courts, which have original and appellate jurisdiction.
Since 2005, the code on judicial competence has introduced provisions on arbitration. In 2007, the Burundian Government created a centre for arbitration and mediation to deal with such disputes.
It is worth mentioning that the investment code allows the competence of international arbitration chambers for disputes arising over investments made in Burundi. Burundi is a member of the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).
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ETHIOPIA
Capital City: Addis Ababa
Currency: Birr (ETB)
Official languages: Amharic, Oromo, Tirinya, Somali
Government: Federal Republic
President: Girma Woldegioris
Prime Minister: Hailemariam Desalegn (acting Prime
Minister)
Population: 90, 873,739 (2011 estimate)
GDP (purchasing power parity): US$ 1,246,679 (2013)
ETHIOPIA FIRM PROFILE
TESHOME GABRE‐MARIAM BOKAN Teshome Gabre‐Mariam Bokan Law Office was established in Addis Ababa in 1982. The firm is consistently ranked as a Band 1 law firm by Chambers Global.
Teshome Gabre‐Mariam Bokan Law Office draws upon a wealth if experience and offers extensive expertise on the nuances of operating in Ethiopia’s commercial environment. Teshome Gabre‐Mariam Bokan, the firm’s founder and managing partner, started his legal career as the legal advisor of Ethiopian Airlines, a pioneering corporation in Africa’s transport sector and one of Ethiopia’s best performing entities.
The firm has advised the United Nations on the revitalization of the mining industry across Africa and the drafting of new mining investment codes. The firm’s founder also served Ethiopia’s Attorney General and as Minister of State at the Ministry of Mines and Energy in the Government of Ethiopia.
“Clients praise Teshome Gabre‐Mariam Bokan’s good pragmatic commercial understanding, and describe him as a very engaging character” – Chambers Global 2013
Contact Information
A: 3rd Floor, Park Lane Tower,
Bole sub city Kebele 03/05, Addis Ababa
P: P.O. Box 101485, Addis Ababa, Ethiopia
T: +251 11 551 848/4096
F: +251 111 551 3500
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ETHIOPIA COUNTRY PROFILE
POLITICAL OVERVIEW The President of Ethiopia is head of state. He is elected by the House of People's Representatives for a six year term and may be re‐elected for a second term. The Prime Minister is appointed by the party which attains power in the elections. The Prime Minister appoints the Council of Ministers, which is then approved by the House of People's Representatives.
Under the 1994 constitution, which became effective on 22 August 1995, Ethiopia is a federal republic with ethnically‐based regions. Ethiopia is a multi‐party state and has approximately 65 political parties, of which the Ethiopian People's Revolutionary Democratic Front is dominant.
ECONOMIC OVERVIEW The agricultural sector constitutes approximately 49.3% of GDP and over 70% of export earnings, and accounts for approximately 85% of total employment. The services sector is the fastest expanding sector and also constitutes close to 40% of GDP.
Ethiopia qualified for debt relief from the Highly Indebted Poor Countries ("HIPC") initiative in November 2001, and obtained debt forgiveness from the International Monetary Fund in December 2005. Ethiopia’s GDP has maintained a steady growth rate of 11.8% over the last five years, largely due to increased agricultural exports.
The government of Ethiopia has attempted to promote private sector investment by implementing an investor‐friendly taxation, trade and credit system, and by simplifying and clarifying business and administrative procedures for investors. However, major sectors of the economy continue to be dominated by state‐owned and ruling party‐owned entities. Foreign entities are prohibited from participating in certain economic sectors, including banking, insurance and microcredit sectors.
REGULATORY ENVIRONMENT The World Bank's "Doing Business 2012" data ranks Ethiopia 111th out of 183 countries in terms of ease of doing business in Ethiopia.
Foreign investors are required to obtain investment permits and business licences from the Ethiopian Investment Agency ("EIA"). Trade and business licenses for the following activities are issued by other government institutions:
a) prospecting and mining of minerals; b) various water works services, excluding water works construction services; c) banking, insurance and micro finance services; d) air transport services and other aviation services; e) commercial activities involving the use of radioactive materials and radiation emitting
equipment; f) telecommunication services; g) the business of generating or transmitting or distributing or selling electricity; h) repairing and maintaining of arms and firearms and sale of explosives; i) sea and inland water ways transportation services;
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j) multimodal transport services; k) the business of warehouse receipt system; l) Trade in tobacco and tobacco products.
Foreign investors wishing to purchase an existing private enterprise, or shares therein, are required to obtain prior approval from the EIA. The capital entry requirements for joint ventures and consultancy services have been decreased and capital goods, other than computers and vehicles, may be imported duty‐free.
The most popular areas for foreign direct investment have been horticulture, floriculture and leather. Foreign investment in banking, insurance, finance, broadcasting, air transport, shipping, wholesale trade, resale trade and the export of coffee, oilseeds, hides and skins is prohibited.
Most tenders issued by the Privatisation and Public Enterprises Supervising Agency are open to foreign participation.
The Investment Law provides that the assets of a domestic or foreign investor cannot be nationalised except when the public interest requires it, when such nationalisation is in compliance with the law and when sufficient compensation is paid. Assets may only be seized, impounded or disposed of by court order.
There are no designated foreign trade zones or free ports in Ethiopia. Exports and imports through the Eritrean port of Assab are prohibited due to the Ethiopian‐Eritrean war. Most Ethiopian trade is conducted through the port of Djibouti and, occasionally, via the Somaliland port of Berbera.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Ethiopia commenced its accession to the World Trade Organisation in 2003 and submitted its memorandum of Foreign Trade Regime in 2006.
Ethiopia has entered bilateral investment and protection agreements with 29 countries, including South Africa, and has ratified a protection of investment and property acquisition agreement with Djibouti. The country has also concluded double taxation treaties with Algeria, China, Czech Republic, Iran, Israel, South Africa, Tunisia, Turkey the
United Kingdom (not yet in force, although signed), Yemen, Russia, Romania, Italy, Kuwait and France.
Ethiopia is a member of the Multilateral Investment Guarantee Agency (“MIGA”) and a member of the African Union (“AU”), the Common Market for Eastern and Southern Africa (“COMESA”) and the United Nations (“UN”).
INVESTMENT PROMOTION
Institutions governing investment promotion Various government agencies have mandates to encourage and manage investment in Ethiopia. The EIA grants foreigners investment and business licences, while the National Foreign Investment Promotion Advisory Council promotes investment in the areas of textiles and garments, leather products, fruits and vegetables, and agro‐processing. The Privatisation and Public Enterprises Supervising Agency issues government tenders in areas such as infrastructure development and public sectors.
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Investment incentives Incentives are provided to investors under Proclamation No. 769/2012, and Investment Incentives and Investment Areas Reserved for Domestic Investors Council of Ministers Regulation No. 270/2012.
There are specific incentives for investments related to development, education and health; reduced capital entry requirements for technical consultancy services and joint ventures; duty‐free entry for capital goods (excluding vehicles and computers). Investors leasing land for investment purposes are given priority. In addition, foreign investors who reinvest profits or dividends or export 75% or more of domestic output are exempt from minimum capital requirements. There is no requirement for participation by local partners in joint ventures.
However, where such ventures are for manufacturing of weapons and ammunition telecommunication services, investors will be only be allowed to invest in the in joint venture with the Government. There is no specific ownership thresholds set although in practice the government in most cases would want to have a stake of more than 50%.
Foreign exchange accounts, payments and current transfers are subject to controls and restrictions. Few restrictions apply to the remittal of profits, dividends, and principal and interest on foreign loans.
TAX
Income tax All persons who earn an "income" as defined in the Income Tax Proclamation No. 286/2002 or 286/1994 and the Income Tax (Amendment) Proclamation No. 608/2008 or 608/2001 are obliged to pay income tax. This includes income from business activities, income from entrepreneurial activities carried on by a non‐resident through a permanent establishment, and licence fees (including lease payments, and royalties paid by a resident or a non‐resident through a permanent establishment).
An individual is regarded as being resident in Ethiopia if that individual has a domicile or habitual abode in Ethiopia, or is a citizen of Ethiopia, or is a consular, diplomatic or similar official of Ethiopia posted abroad. An entity is regarded as resident if it has its principal office or place of effective management in Ethiopia or is registered in the trade register of the Ministry of Trade or of a trade bureau of a regional government.
Corporate income tax is computed on taxable profits. The statutory tax rate is 30%.
New investors in certain agricultural, agro‐industrial and manufacturing sectors who export a minimum of 50% of their products or supply a minimum of 75% of their products to an exporter as a production input are exempt from income tax for five years. If these percentages are not attained, a two year exemption from income tax is granted. An additional one year exemption is granted to those who invest in certain underdeveloped regions of the country.
Exemptions do not apply to those exporting hides and skins which are in unfinished form.
Withholding tax Withholding tax is levied on imported goods at a rate of 3% on the sum of cost, insurance and freight and is levied at a rate of 2% in the case of business entities, non‐governmental organisations, private non‐profit institutions and government agencies.
Tax is imposed on dividends at a rate of 10%, on interest at a rate of 5% and on royalties at a rate of 5%.
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Capital gains tax Revisions to the Investment Law reduced capital gains tax from 40% to;
a) 15% (fifteen percent) in respect of building held for business, factory or office and b) 30% (thirty percent) in connection with shares of companies.
Any remittance made by a foreign investor in Ethiopia from the proceeds of a sale or transfer of shares or assets upon the liquidation or winding up of an enterprise is exempted from the payment of capital gains tax.
Other tax Turnover tax is levied at a rate of 2% on the supply of goods to the local market and on construction, grain, mill, tractor and combine harvesting services.
Value Added Tax ("VAT") is levied at a rate of 15% on businesses whose turnover exceeds ETB 500 000 per year. All exported goods and basic services are exempted from VAT.
Transfer pricing and thin capitalisation There are no regulations regarding transfer pricing or thin capitalisation in Ethiopia.
Stamp and transfer duty In the course of starting a company, stamp duty is charged at a flat rate of ETB 350.
In the course of registering property in Ethiopia, stamp duty is charged at 2% of the property value at the Land Administration Office. In the course of selling a property, the seller has to obtain tax clearance on the property from the Tax Authorities in respect of transfer tax.
Double tax treaty with Mauritius No
EXCHANGE CONTROL Under Ethiopia’s Investment Law, all foreign investors are entitled to remit profits, dividends, principal and interest on foreign loans, and technology transfer‐related fees. Foreign investors may also freely remit proceeds from the sale or liquidation of assets, from transfer of shares or partial ownership of a business, funds for debt service, and other international payments. Expatriate employees may remit their salaries in accordance with the National Bank of Ethiopia's ("NBE") foreign exchange regulations.
Repatriation of company profits may be delayed due to low reserves of hard currency held by the NBE. Businesses must apply for foreign exchange for imports a minimum of six to nine months in advance of their intended importing needs.
IMPORTS AND EXPORTS The import and export of prohibited and restricted goods is controlled by the Ethiopian Customs Authority. Banned imports include goods which are socially or morally harmful such as habit forming drugs, military weapons, explosives, fireworks, poisons and toxic substances, and pornographic materials. Plants, plant products and seeds can only be imported without prior consent.
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The Quality and Standards Authority of Ethiopia is the first quality and standards accreditation and certification authority in the country. All medicines and medical supplies must be registered, prior to use and distribution, with the Drug Administration and Control Authority.
Imports and exports are subject to taxes and duties under the Harmonised Commodity Description coding system. They are also subject to the preferential tariff rate where goods are imported from the preferred country and the rates in force on the day the declaration of goods is presented to, and accepted by the customs office.
High import tariffs are applied to protect certain local industries such as the leather and textile industries. Ad valorem tariffs range from 0% to 35%. The Ethiopian government has introduced 10% surtax on certain imported goods, with the proceeds being attributed to the distribution of subsidised wheat in urban areas.
Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA) and goods imported from COMESA countries are afforded a 10% tariff preference.
Importers must obtain import permits and letters of credit for the total amount imported. Tax certification is required for repatriation of dividend or investment income. Regulations govern the repayment of loans and foreign partner credits. There are also rules governing import permit issuance by commercial banks and a clearance certificate from the National Bank of Ethiopia is required to obtain an import permit.
ACCOUNTING PRINCIPLES Accounting practices in Ethiopia vary among different institutions and differ from International Financial Reporting Standards ("IFRS").
A draft Bill entitled the "Financial Reporting Proclamation" is currently under revision by the Ministry of Finance and Economic Development.
The Bill aims to ensure that international financial and auditing reporting standards are complied with. An Institute of Certified Public Accountants of Ethiopia will also be formed if the Bill passes into law.
The Commercial Code, 1960, holds company directors responsible for preparing financial statements and ensuring that audits are conducted. While the Public Enterprises Proclamation, 1992, requires state‐owned enterprises to create financial statements in accordance with generally accepted accounting principles, the standards are not defined.
INDUSTRIAL RELATIONS There is no national minimum wage in Ethiopia, although some government institutions and public enterprises set their own minimum wages. The definition of "wages" in the Labour Proclamation does not include allowances, bonuses or overtime pay.
All eight of the ILO conventions have been ratified by Ethiopia and most of the Core Labour Standards have been enacted into law. The Labour Proclamation sets minimum work standards. Employers may not hire persons under the age of 14 years and are subject to certain restrictions in respect of the hiring of persons aged 14 to 18 years, although these restrictions are not often enforced. The maximum number of working hours per week is 48 hours.
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The Confederation of Ethiopian Trade Unions focuses on fundamental workers' concerns, such as job security, pay increases, severance pay, and health and retirement benefits. Grounds for termination of an employment contract are set out in the Labour Proclamation and include misconduct, incapacity and operational requirements.
Under new legislation promulgated in June 2011, the pension coverage system is open to employees in the private and public sector. Contributions to funds are made on the basis of 7% of the employee's salary and 11% contribution from the employer.
All foreigners entering the country must obtain visas either at the arrival gate, or prior to arriving in the country from an Ethiopian Embassy, Permanent Mission or Consul General. A work permit is obtained from the Ministry of Labour and Social Affairs. A business visa may be converted into a work permit. A work permit may also be obtained while travelling on a business visa. Procedural requirements for the work permit vary according to the type of organisation at which the expatriate will be working. A residency permit may be obtained from the Ethiopian Immigration Authority. Expatriate employees may remit their salaries in accordance with the NBE's foreign exchange regulations provided the NBE is notified of the expatriate’s employment in Ethiopia.
REAL PROPERTY No right of private ownership of land exists in Ethiopia. All land is state‐owned and may be leased from the state for up to 99 years. The forms and practice of leasehold systems vary according to the various regions.
CORRUPTION Transparency International's 2011 Corruption Perceptions Index ranked Ethiopia 120th out of 182 countries. The country ratified the United Nations Anti‐Corruption Convention in 2007. It is a crime to give or receive bribes in Ethiopia. The Ministry of Justice and the Federal Ethics and Anti‐Corruption Commission are the bodies responsible for combating corruption. The Proclamation on Prevention and Suppression of Money Laundering and the Financing of Terrorism, through which a national financial intelligence unit will be established, became effective in December 2009.
Following frequent complaints from investors about the lack of transparency in the procurement system, the Ethiopian government has established a public procurement and property administration agency which is intended to be an autonomous government organ, with its own judicial branch, accountable to the Ministry of Finance and Economic Development.
COMPETITION The Ethiopian government repealed the Trade Practice Proclamation announced in 2003 and enacted the Trade Practice and Consumers’ Protection Proclamation No. 685/2010 in its place. The Proclamation aims to promote competitive practices in the local market and eliminate or prevent anti‐competitive and unfair trade practices. Amongst other things, the Proclamation regulates anti‐competitive practices such as price‐fixing, collusive tendering, market and consumer segregation, refusals to deal, sell or render services, practices intended to eliminate competitors, and practices regarded as abuse of dominance. It does not address issues related to mergers, take‐overs or conglomerations at domestic, regional or international level.
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The Ministry of Trade has established an Investigation Commission to deal with the day‐today implementation of the Proclamation and the monitoring thereof. It receives and investigates complaints, suggests measures to deal with these complaints in line with the Proclamation, and takes administrative steps to deal with the complaints, even to the point of using police force.
Parties unhappy with a decision of the Investigation Commission can, appeal within 30 days of the decision to the Federal High Court.
CONSUMER PROTECTION There is currently no consolidated consumer protection legislation in Ethiopia. The Civil Code regulates contracts and extra‐contractual liability while the Commercial Code regulates many commercial transactions. Other pieces of legislation such as the Classification of Hotels, Restaurants and Pensions Regulation and the Licensing and Supervision of Insurance Business Proclamation are also relevant in the area of consumer protection.
The Trade Practice and Consumers’ Protection Proclamation No. 685/2010 establishes the Trade Practice and Consumer Protection Authority. Under the Trade Practice and Consumers’ Protection Proclamation No. 685/2010, consumers have the right to be provided with accurate information on the quality and type of goods or services being provided, and to claim damages in relation to such transactions. Adjudication of disputes will be in line with the Civil and Criminal Codes. The Authority will be accountable to the Ministry of Trade.
LEGAL FORMS OF INCORPORATION IN ETHIOPIA The principal business entities are the sole proprietorship, partnership, general partnership, limited partnership, Share Company, private limited company and joint venture. In addition, a branch office of a foreign company may be set up in Ethiopia.
A private limited company must have at least two members and may have a maximum of 50 members. The minimum capital required of a private limited company is ETB 15 000, and the liability of the company is limited to its assets.
A share company (public company) must have at least five founders. The minimum capital required of a share company is ETB 50,000. The Commercial Code and the Investment Law govern the incorporation of these business entities.
The table below provides a summary of the procedures and the associated completion time and cost for setting up a private limited
Procedure Time to
complete
Cost to complete
1 Check the company name for uniqueness
with the Ministry of Trade
1 day No charge
2 Authentication of the company documents 2 days ETB 390 (ETB 350 stamp duty
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at the Office of Acts and Documents Registration
and service charge of ETB 10
each for four copies of the
M.O.A)
3 Register the Company Document at the Commercial Register and obtain the trade licence
1 day ETB 85 approximately (registration fee, licensing fee, forma, cards and stamps vary according to the company's capital)
4 Register with the Ethiopian Revenue and Customs Authority for Income Tax and VAT (Tax Identification Number and tax certificate are issued upon registration)
2 days No charge
5 Provide a company seal (the law does not specifically require this, although it is required in practice)
3 days ETB 100
INDUSTRY SECTORS
Agriculture The agricultural sector constitutes approximately 50% of GDP and approximately 85% of total employment. Approximately 80% of the labour force is involved in subsistence agriculture, as farmers or herders. Consecutive seasons of failed rains, however, mean the country still faces food insecurity.
Ethiopia's main crops are coffee, pulses, oilseeds, cereals, sugarcane, potatoes and vegetables. Horticulture and floriculture are popular areas for foreign direct investment. Ethiopia is Africa's second largest maize producer and its livestock population is believed to be the largest in Africa.
Since 2009, the Ethiopian government has been focusing on encouraging investment in large‐scale commercial farms. The Ministry of Agriculture and Rural Development created an Agricultural Investment Support Directorate which aims to increase production, employment, technology transfer, and provide private investment incentives. It is negotiating long‐term leases in respect of approximately seven million hectares of commercial farmland (as mentioned above, land is state‐owned, not privately owned in Ethiopia). The Directorate also offers up to seven years grace on land rentals.
Financial and banking services The National Bank of Ethiopia ("NBE") is the country's central bank, and holds a monopoly on all foreign currency transactions. Amendments to the Monetary and Banking Proclamation of 1994 and the Banking Business Proclamation of 1994 became effective in 2008 and gave the NBE authority to licence and supervise financial institutions more rigorously. Bank processes concerning exports to China were ordered by the NBE in 2006 to be undertaken exclusively by the state‐owned Commercial Bank of Ethiopia. There is no stock market in Ethiopia.
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The foreign exchange regulations of the NBE allow expatriate employees to remit their salaries. The local currency, the Birr, is not freely convertible. Since 2004, the NBE has permitted non‐resident Ethiopians and non‐resident foreign nationals of Ethiopian origin to establish and maintain foreign currency accounts of up to USD 50 000.
The Ethiopia Commodity Exchange was initiated in 2008 and the intention is to increase transparency in commodity pricing, encourage commercialisation of agriculture and alleviate food shortages. It offers trades on commodities such as coffee, sesame seeds, corn and wheat.
The government offers 28‐day, three‐month and six‐month treasury bills, but the interest rate thereon is prevented from exceeding the bank deposit rate. The yields on these bills are low, and the market is fairly unattractive to the private sector with 95% of the bills being held by the Commercial Bank of Ethiopia. The Ethiopian Investment Law prohibits foreign investment in the banking, insurance, microcredit and financial sectors.
Energy Approximately 90% of Ethiopia's electricity is produced through hydropower.
Petroleum requirements are met through imported refined products. Oil exploration has been ongoing since September 1945 when the Emperor Haile Selassie granted a 50 year concession to SOCONY‐Vacuum. There are natural gas reserves of four trillion cubic feet in the south‐eastern lowlands of the country. Oil and gas exploration is occurring in the Gambela region, bordering Sudan.
Apart from the use of water and wood in electricity production, Ethiopia is not well endowed with energy resources, and indeed numerous power outages occurred during 2009. Consequently, the Ministry of Mines is seeking investment in the energy sector in order to combat the crisis. The Ministry is particularly interested in renewable energy sources and a draft feed‐in tariff Bill, establishing rates and conditions for private entities to supply power to the national grid, is being finalised. A number of high profile energy projects are also expected to be completed in 2011/2012 as Ethiopia is looking to export electricity to Sudan, Kenya and Djibouti.
Manufacturing The manufacturing sector constitutes approximately 13% of GDP, and employs 5% of the labour force. Growth of the industrial sector is inhibited by the fact that, with all land being state‐owned, entrepreneurs are not able to use land as security for loans.
The Tigray State has created industrial zones supplied with basic infrastructure in nine major towns (Mekelle, Adigat, Adwa, Axum, Endaslasie, Alamata, Maichew, Wukro, Humera) which allows for lower fixed lease prices per square metre in these areas for investors. As mentioned above, investors in the manufacturing and agro‐industrial sectors are granted tax exemptions according to the extent to which they export their products.
The manufacturing sector is mostly concentrated in Addis Ababa, with the focus being on food processing and beverages, textiles, leather, chemicals, metal processing and cement.
Mining Ethiopia has modest reserves of gold, platinum, copper, natural gas and potash, as well as kaolin, iron ore, gemstones, coal and kaolin. Salt extraction occurs at the salt beds of the Afar Depression and in the springs of Dire and Afder Woredas. The proven oil reserve level is 430 000 bbl and the proved natural gas reserves are 24.92 billion c u m. Ethiopia continues to be one of the top tantalum‐producing countries.
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Ethiopia’s mining sector is regulated by the Mining Law, the Mining Income Tax Law and Mining Regulations. The mining legislation provides that private investors are permitted to perform all kinds of mining operations, including exploration, mining, processing and export. Investors may acquire a one year exclusive prospecting licence and a three year exclusive exploration licence with renewals of two years each. Investors may acquire a 20 year exclusive mining licence with unlimited renewal periods of ten years each. The right to sell minerals in Ethiopia and abroad is guaranteed. Minerals not originally specified may be added to the licence if discovered and there is an exemption from customs duties and taxes on the importation of equipment, machinery, vehicles, and spare parts necessary for mining operations.
The major African cement producer, Messebo Cement, acquires limestone, clay and other inputs from the Mekelle area of Ethiopia. The demand for cement in Ethiopia is high due to the government's housing programme and the building of dams, roads, and irrigation canals. In addition, a number of foreign investors have obtained mining licences for gold exploration in Western Tigray, although mining operations have yet to begin.
Industrial minerals have been cited as the most promising areas of investment in Ethiopia. There are significant sources of limestone, granite, marble, slate, silica sand and greenstone, which have yet to be exploited by investors, in the north and north‐west of Mekelle. Saba Dimensional Stone plc (a dimensional stone processing plant) in Adwa Town, north‐west of Mekelle, processes marble, limestone and granite in particular, supplying tiles and slabs locally.
Telecommunications Investors may only enter into the telecommunication services industry in the form of a joint venture with the state. Ethio‐Telecom ("ETC") is the state‐owned company which has a monopoly in this sector.
The telephone system in Ethiopia has been described as "inadequate" and the combined fixed and mobile‐cellular teledensity is estimated at five per 100 persons. The ETC has estimated that the average rural Ethiopian inhabitant has to walk 30 kilometres to reach a telephone.
There are approximately 360 000 internet users, with 151 internet providers in 2010. There is one public television broadcast station, one public radio broadcaster, a few commercial radio stations and approximately a dozen community radio stations.
Tourism Tourism constitutes approximately 4.1% of Ethiopia's GDP, and utilises 3.1% of the labour force. Tourism is said to be a good area for potential investors due to the moderate dry climate, historical and religious sites and ecological beauty. The area of ecotourism in particular has great potential for growth.
INTELLECTUAL PROPERTY In 1998, Ethiopia acceded to the Convention establishing the World Intellectual Property Organization (WIPO). The Ethiopian Constitution (1995) provides the foundation for intellectual property rights. The Government also recognizes the protection of intellectual property rights as a key factor in economic growth.
As a result, there is in place:
1. The Inventions, Minor Inventions and Industrial Designs, Proclamation No. 123, 1995 enacted to protect intellectual rights;
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2. The Civil Code of 1960, for the protection of copyright; and 3. Trademark Registration and Protection Proclamation No. 501/2006 which regulates acquisition, registration and protection of trademarks in Ethiopia.
These Proclamations are in accord with the spirit of the Berne Convention for the Protection of Literary and Artistic Works, the Agreement on Trade‐Related Aspects of Intellectual Property Rights (TRIPS) and the WIPO Treaty.
The Ethiopian Intellectual Property Rights Office, established in 2003, is responsible for the administration of patents, trademarks, copyrights, and other intellectual property policy and legal issues. The Office suffers from a lack of manpower and weak capacity for law enforcement. It has registered three Ethiopian coffee trademarks in overseas countries.
Patents are protected for 10 to 15 years, with an additional five years if there is proof that it is properly utilised. Industrial designs are protected for five years, with two possible five year extensions. Copyrights are protected throughout the lifetime of the author and 50 years after his or her death, 50 years for the producers of sound recordings and performers, and 20 years for broadcasting entities. Trademarks are protected after the publication of a cautionary notice.
DISPUTE SETTLEMENT Ethiopia has signed but not ratified the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States. In terms of the Investment Law, disputes concerning foreign investment may be settled by mutually agreeable means, failing which the dispute may be referred to a court or international arbitration in terms of a bilateral or multilateral agreement to which Ethiopia and the investor's state are parties. However, the award of an international tribunal is not always enforced in Ethiopia.
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KENYA
Capital City: Nairobi
Currency: Kenyan Shilling (KES)
Official languages: English, Swahili
Government: Unitary republic with a Federal system
President: Uhuru Muigai Kenyatta
Deputy President: William Samoei Ruto
Population: 43,013,341(based on July 2012 estimates. Official 2009 census figure was approximately 38.6 million) GDP (purchasing power parity) : 72.34 billion US dollars in 2012 (based on an Index Mundi report) Time Zone: GMT +3
KENYA FIRM PROFILE
ANJARWALLA & KHANNA With over 40 lawyers, Anjarwalla & Khanna is Kenya’s largest corporate law firm. The firm was nominated for the award of “Law Firm of the Year“in the Middle East and Africa in the 2010 and 2011 British Legal Awards.
Anjarwalla & Khanna is recognized for its ability to handle complex transactions and its reputation for exceptional client service. The firm is ranked first in Kenya by various legal guides, including Chambers Global; Legal 500 and Euromoney Guide to the World’s Leading Project Finance Lawyers.
Anjarwalla & Khanna’s client base includes financial institutions, private equity funds, venture capital and institutional equity investors, real estate developers, telecommunications companies, project developers and financiers, multilateral lenders, industrial and commercial companies, professional firms as well as government and public organizations.
“They’re extremely responsive, and not only do they understand the laws very well, but they also understand the business side” – Chambers Global 2013
Contact Information:
Nairobi
A: ALN House, Eldama Ravine Gardens,
Off Eldama Ravine Road
A: Apollo Centre, 2nd Floor, Wing A, Ring Road
Parklands, Westlands
P.O. Box 200 – 00606 Sarit Centre, Westlands
Nairobi, Kenya
T: +254 70 303 2000
F: +254 20 364 0201
Mombasa
A: SKA House, Dedan Kimathi Avenue
P: P.O. Box 83156 – 80100, Mombasa, Kenya
T: +254 41 231 2848/9
F: +254 41 222 4996
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KENYA COUNTRY PROFILE
POLITICAL OVERVIEW Kenya adopted a new Constitution on 27th August, 2010. The first general elections under the new Constitution were held in March 2013, following which Kenya ushered in a new government structure. Under the new government structure, the Republic of Kenya is a unitary State but with a devolved governance system comprising of the National Government and 47 County Governments. The governance structure comprises of:
• The Executive arm headed by the President. The President is both the head of state and the head of government. The President is elected by simple majority and must obtain at least 25% of the vote in five of Kenya’s eight provinces. The law requires the president to appoint between 14 and 22 cabinet secretaries reflecting ethnic and regional diversity;
• The legislature comprising of two houses: the National Assembly and the Senate which are vested with law making; and
• The Judiciary head by the Chief Justice. The Supreme Court is the highest court in the land.
The country has a multi‐party political system whose hallmark is parliamentary democracy.
Businesses and investors will need to adjust to new institutional arrangements and new policies at national and the local level, that are now in the process of being developed following the March 2013 elections.
ECONOMIC OVERVIEW The Kenyan economy, East Africa's largest, has experienced considerable growth in the past few years, driven by several key factors The country enjoys some particular advantages: a reasonably well‐educated labour force, a vital port that serves as an entry point for goods destined for countries in the East and Central African interior, abundant wildlife and miles of attractive coastline and a government that is committed to implementing business reforms.
Kenya is part of the East African Community (EAC), of which Tanzania, Uganda, Rwanda and Burundi are the other members. The EAC is working towards a closer integration and this is likely to have far reaching, positive consequences for Kenya's economy. Kenya is also a member of COMESA ‐ the 20 member Common Market for East and Southern Africa, opening up the way for trade across Eastern and Southern Africa for nearly 400 million people which is about half of Africa's total population.
The Development of the EAC presents opportunities, as well as challenges for Kenya. Kenya's economy is considerably larger than those of Uganda and Tanzania, not to mention Burundi and Rwanda, and it has been necessary for the government to make tax concessions so that the customs union, in effect from January 1, 2005 does not unfairly disadvantage the other members.
Kenya has a vibrant investment environment. As at January, 2013, the Nairobi Stock Exchange (NSE) had 61 listed companies. The Central Depository and Settlement Corporation provide central depository services for securities in Kenya.
The Government is currently pursuing the Kenya Vision 2030, which is the country’s development blueprint covering 2008 to 2030. Six key sectors have been given priority as key growth drivers in this
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plan, namely: tourism, agriculture, manufacturing, ICT and business process out sourcing, wholesale and retail trade, and finance.
The World Bank’s 2012 Kenya Economic Update estimated Kenya’s growth rate at 4.3 percent in 2012, slightly lower than the 4.4 percent of Gross Domestic Product (GDP) realized in 2011, but is optimistic that the economy has stabilized after a rocky start earlier in the year. Its estimate for 2013 was 5%.
REGULATORY ENVIRONMENT Much of Kenyan investment law is modelled on English law. One of the most significant changes to take place in Kenya in the last few years is the enactment of a new Constitution in 2010. The period following the promulgation of the new Constitution has seen the enactment of an unprecedented number of new laws in Kenya. In 2012, at least 25 new statutes were enacted while in the year before, 35 new statutes were enacted. 2013 is similarly expected to be a busy year for law makers, with over 40 Bills lined up for debate and possible enactment into law.
Kenya’s sources of law are the Constitution; written laws; English statutes of general application in force as at 18th August, 1897; the common law and doctrines of equity; and customary law. In addition, the Constitution provides that the general rules of international law and indicate that treaties or conventions ratified by Kenya form part of the laws of Kenya.
The key corporate and investment laws are the Companies Act (Cap 486) and the Investment Promotion Act, 2004. The Constitution of Kenya, 2010 envisions the enactment of numerous pieces of legislation to be enacted by Parliament covering a wide range of subjects, including land ownership, consumer protection and exploitation of natural resources.
Kenya has taken steps to overhaul several key commercial laws which are largely based on legislation adopted during the colonial period to make them more compatible to current global trends and the investment environment. There is proposed new legislation covering company law, insolvency, capital markets, demutualization of securities exchange and banking and payment systems. A new Competition law which seeks to ensure a more competitive market was brought into effect in 2012.
Over the past few years there have been major efforts to privatise commercial sectors that were previously government owned or managed and to encourage foreign investment in these sectors. The stated aim of the Government is to have minimal interference in business and the Government is increasingly adopting the role of a regulator rather than an active market participant.
To promote investment in Kenya, the Government overhauled Kenya’s licensing regime in 2006, reducing the number of licenses required while making licensing regimes simpler and more transparent. In 2008, the government reduced the number of licences required to set up a business from 300 to 11. The Business Regulatory Reform Unit in the Ministry of Finance continues this streamlining process.
In general, foreign and local investors receive equal treatment. Foreign and local investors can operate in all sectors except those state corporations that still enjoy a statutory monopoly, such as in infrastructure, or where there are quotas on minimum local ownership, such as insurance and telecommunications sectors. Ownership restrictions also apply to listed companies. Kenya has taken steps towards partial liberalization of state monopolies in certain sectors. A number of state corporations have been privatized and essential sectors such as energy have been opened to private investors.
Residents and non‐residents are permitted to hold foreign currency accounts.
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INVESTMENT PROMOTION
Bi-Lateral and Multi-Lateral Treaties Kenya is a member of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), African, Caribbean and Pacific States (ACP) and World Trade Organisation (WTO).
Currently, Kenya has signed double tax agreements with Canada, Denmark, France, Germany, India, Norway, Sweden, the United Kingdom and Zambia. Treaties with UAE and with Mauritius have been signed, but are not yet in force, while a treaty with Uganda and Tanzania has been negotiated, but not yet ratified by each of Kenya, Uganda and Tanzania.
INSTITUTIONS GOVERNING INVESTMENT PROMOTION
Kenya Investment Authority In a bid to encourage investment in Kenya, the National Assembly enacted the Investment Promotion Act, 2004 (the IPA). The IPA aims to reduce bureaucratic delays in relation to licensing, immigration and negotiating tax incentives and exemptions from the relevant authorities. The IPA established a corporate body known as the Kenya Investments Authority (KIA) to implement the goals of the legislation.
For a foreign investor to qualify for an investment certificate, the minimum value of his proposed investment should be USD 100,000 or the equivalent in another currency.
In deciding whether to issue an investment certificate, KIA considers the extent to which the investment will contribute to the Kenyan economy by increasing the number and quality of jobs in Kenya, training of Kenyans in new skills or technology, contributing to economic development, the transfer of technology or increasingly tax revenue and foreign exchange.
Investment incentives An investment certificate granted under the IPA offers investors some important benefits, the principal one being that KIA facilitates the issuance of all necessary licences and permits required for the investor’s operations. Investment certificate holders are entitled to apply for entry work permits for three (3) members of the holder’s management or technical staff and three co‐owners, shareholders or partners.
Kenya has Investment Promotion and Protection Agreements with France, Finland, Germany, Italy, Netherlands, China, Libya, Iran, Burundi and the United Kingdom.
There is availability of debt in both local currency and foreign currency. There are no restrictions on repatriation of dividends. There are also no foreign currency restrictions applicable in Kenya, neither does Kenya restrict remittances to a foreign recipient. However the Central Bank of Kenya has promulgated regulations under the provisions of the Central Bank of Kenya Act (Chapter 491, laws of Kenya) which require that where a transaction undertaken in Kenya involves the payment of “hard” currency to a foreign recipient, such remittance must be effected through an authorised bank, being a bank licensed by the Central Bank of Kenya to conduct banking business in Kenya. Therefore, all payments in and out of Kenya have to be remitted through an authorised bank in Kenya.
Additionally, there are regulations pursuant to which payments out of Kenya of below US$10,000 can be made freely. Payments of between US$10,000 to US$499,999 require evidence of the purpose of the payment being made to be provided to the authorised bank (payments of interest and principal under a
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loan agreement would be permitted). Payments out of over US$500,000 have to be notified by the authorised bank to the Central Bank of Kenya.
Export Processing Zones (EPZs) Kenya has established ‘special economic zones’ under the Export Processing Zones Act (Cap 517) (EPZ Act) to promote and facilitate export orientated investment. The activities eligible to be carried out within EPZs include manufacturing, commercial and service activities geared towards exportation. Persons may set up EPZs by obtaining a licence to develop or operate a zone on land gazetted as an EPZ.
EPZ licensed businesses are granted certain tax exemptions including:
• Payment of VAT and customs duties on raw materials, machinery and equipment, spare‐parts, tools, raw materials, intermediate goods, construction materials and equipment, office equipment and supplies and transportation equipment;
• Payment of income tax for the first ten year from the date of the first sale as an EPZ enterprise, except that the income tax shall be limited to 25% for the first ten years following the expiry of the exemption;
• Exemption from the payment of withholding tax on dividends and other payments made to non‐residents during the period that the EPZ enterprise is exempted from payment of income tax; and
• Exemption from stamp duty on the execution of any instruments relating to the business activities of an EPZ enterprise.
TAX AND ACCOUNTING PRINCIPLES
Income Tax Resident and non‐resident corporate entities with a permanent establishment in Kenya are subject to tax on all income accrued in or derived from Kenya. A company is tax resident if it is incorporated under Kenyan law; if management and control of its affairs are exercised in Kenya; or if the Minister of Finance declares the entity to be tax resident in a notice published in the Kenya Gazette. An individual is resident if: they have a permanent home in Kenya and are present for any time during the year; if they are present in Kenya for at least 183 days in the tax year; or if they have averaged 122 days in Kenya in the tax year and the previous two years.
The corporate income tax for a locally incorporated company is 30%. The corporate income tax rate for a non‐resident company having a permanent establishment in Kenya (a foreign branch) is 37.5%. Newly listed companies on the Nairobi Stock Exchange (NSE) receive a reduced rate for the first 3‐5 years following the year of listing. The reduced rate varies between 20%‐27% and applies for a period of between 3‐5 years, depending on the percentage of capital listed by the entity on the NSE.
Individual income tax rates are based on a graduated scale based on income brackets with the lowest rate being 10% and the highest rate being 30%.
Withholding tax For dividends paid to Kenyan residents and on listed shares for citizens of the East African Community (EAC) the rate of withholding tax is 5%. A 10% rate applies for the dividend payments to non‐residents. No withholding tax is imposed if the recipient is a resident company which controls 12.5% or more of the capital in the paying company.
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Loan interest paid to residents and non‐residents is subject to a 15% withholding tax. No withholding tax is imposed if the recipient is a qualifying Kenyan financial institution.
Royalties paid by a resident to another resident person would be subject to a 5% withholding tax. Royalties paid by a resident person to a non‐resident person are subject to a 20% withholding tax.
Withholding tax is chargeable on management and professional fees. Payments in respect of management and professional fees made by a resident person to another resident person are subject to a 5% withholding tax. Payments in respect of management and professional fees made by a resident person to a non‐resident person are subject to 20% withholding tax.
The rate of withholding tax may be reduced where the recipient of the income subject to withholding is resident in a country which has a double tax treaty with Kenya. For example, the withholding tax rate for management and professional fees under the Kenya‐ United Kingdom double tax treaty is 12.5%
Capital Gains Tax Capital gains tax was abolished in Kenya in 1985. However, in January, 2013, the Government of Kenya introduced “capital gains tax” on gross proceeds of sale of interests in the oil and mining sector through the Finance Act, 2012. The manner in which the tax is computed however, is in the nature of a “withholding tax”. The tax rate applicable on the consideration depends on whether the relevant proceeds are payable to a resident person or a non‐resident person, with residents being expected to pay ten per cent (10%) and non‐residents twenty per cent (20%) of the gross amount payable. The Government has also indicated plans to re‐introduce capital gains tax on disposal of other forms of assets.
Value Added Tax The VAT Act requires that value added tax be charged in on the supply of goods and services in Kenya and on the importation of goods and services into Kenya. The rate of the Value Added Tax currently applicable in Kenya is sixteen per cent (16%). A special rate of 12% applies to the supply of electricity and fuel. All exported goods are exempt from VAT. Exported services which satisfy certain criteria are exempt from VAT. Zero‐rated vat applies to the import of specified goods including those used in agriculture, health and education, computer hardware and software, international air travel and supplies to licensed oil exploration companies. Supplies that are exempt from Vat include financial services provided by banks and most agricultural produce in its unprocessed state. There is currently a proposed VAT law which aims to repeal the current VAT Act. It would bring sweeping changes to the VAT regime in Kenya.
Transfer Pricing, Thin Capitalisation and Deemed Interest Transfer pricing regulations require pricing arrangements in cross border transactions such as the sale of goods, provision of services, transfer of intangible assets and lending or borrowing of money between related entities to be at an arm’s length.
There are thin capitalization rules applicable in Kenya. Thin capitalisation rules limit the deductibility of loans for any year of income with respect to interest payments in proportion to the extent that the highest amount of all loans held by the company at any time during the year of income exceeds the greater of three times the sum of the revenue reserves and the issued and paid up capital of all classes of shares of the company where the company is in the control of a non‐resident person alone or together with four or fewer other persons and where the company is not a bank or a financial institution licensed under the Banking Act.
Kenya has recently enacted “deemed interest” provisions which apply in respect of interest‐free loans from non‐resident shareholders. Where a non‐resident shareholder has extended a loan to a resident
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company on an interest‐free basis, the resident company is required to compute a deemed‐interest charge based on the prevailing Treasury Bill rates and remit to the Kenya Revenue Authority a withholding tax on the notional (deemed) interest computed in the aforesaid manner.
Stamp duty and transfer duty Stamp duty is charged at nominal or ad valorem rates on certain financial instruments and transactions. Stamp duty of 1% is payable upon the transfer of shares. A stamp duty of 4% of the value of land is payable on the transfer of land in municipal areas. In rural areas the stamp duty is 2% of the value of land. There is no stamp duty on transfer of shares in a listed company. Other agreements and documents attract stamp at varying rates specified in the Stamp Duty
Accounting Principles Kenya has adopted and applies International Financial Reporting Standards (IFRS).
INDUSTRIAL RELATIONS The primary statutes that govern employment and labour matters in Kenya are:
a) The Constitution of Kenya, 2010 which provides for a number of employment rights including the right to fair labour practices, the right to fair remuneration, right to reasonable working conditions amongst others;
b) The Employment Act (Act No. 11 of 2007) which declares and defines the fundamental rights of employees, provides for basic conditions of employment of children and matters connected thereto;
c) The Labour Institutions Act (Act No. 12 of 2007) which establishes labour institutions, provides for their functions, powers and duties and for other matters connected thereto;
d) The Industrial Court Act (Act No. 20 of 2011) which establishes the Industrial Court as a superior court of record and confers jurisdiction on the Industrial Court with respect to employment and labour relations;
e) The Labour Relations Act (Act No. 14 of 2007which consolidates the law relating to trade unions and trade disputes, promotes sound labour relations through the protection and promotion of freedom of association, the encouragement of effective collective bargaining and promotion of orderly and expeditions dispute settlement, conducive to social justice and economic development;
f) The Occupational Safety and Health Act, 2007 (Act No. 15 of 2007) which provides for the safety, health and welfare of workers and all persons lawfully present at workplaces and for the establishment of the National Council for Occupational Safety and Health; and
g) The Work Injury Benefits Act (Act No. 12 of 2007) which provides for compensation to employees for work related injuries and diseases contracted in the course of their employment and for connected purposes.
The legislative framework covers wages, leave, housing, health and welfare, local and foreign contracts of service, employment of women and youth, industrial relations and occupational safety and health.
Wages councils are responsible for formulating wages orders. The wages orders constitute the minimum rates of remuneration and terms of conditions of employment and may not be varied by agreement. The quantum of the minimum wage depends on the industry in which the employee is engaged.
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Normal working hours consist of not more than 52 hours of work per week. No person under the age of 16 may be required to work for more than six hours a day. Employees are also entitled to annual leave with full pay of not less than 21 working days after every year of continuous service and not less than 1.75 days per month when employment is terminated after two or more months of continuous service. The annual leave is in addition to all public holidays, weekly rest days and sick leave as fixed by law or by written agreement.
REAL PROPERTY Land in Kenya remains a very emotive and sensitive issue. Due to a complexity of historical, political, economic and social reasons that have led to an inequitable distribution of land, conflicts relating to land continue and debates about the redistribution of land draw strong opinions. Fuelling this problem is the fact that land laws in Kenya for many years remained very fragmented, with over twenty different statutes governing land ownership and interests relating to land.
In 2010, the then newly promulgated constitution paved the way for an overhaul of the land‐law systems in Kenya. In 2012, the Kenyan legislature overhauled the land‐law systems in Kenya by enacting new land laws, being the Land Act, 2012, the Land Registration Act, 2012 and the National Land Commission Act, 2012. The new statutes repealed and overhauled some of the old land laws such as The Indian Transfer of Property Act of 1882, the Registered Land Act and The Registration of Titles Act.
Under the current laws, land in Kenya may be held under freehold title or leasehold title. Article 65 of the Constitution regulates land holding by non‐citizens. Non‐citizens cannot own land under a freehold title but can have leasehold interests of up to 99 years. The Constitution of Kenya protects the sanctity of private property and the State cannot compulsorily acquire one’s property without paying sufficient compensation.
COMPETITION AND CONSUMER PROTECTION
Competition The Competition Act, 2010 was enacted into law and it became effective in August, 2011. The Competition Act introduces significant changes to the rules governing the control of mergers, provides strong guidance for consumer welfare, prevents restrictive trade practices and unwarranted concentrations of economic power and strengthens the mechanisms for the hearing of appeals.
In January, 2013, the COMESA Competition Commission (CCC) announced that the COMESA competition regime is now in force. The CCC regulates competition and mergers touching on two or more COMESA countries.
Consumer Protection Consumer rights are protected under Article 46 of the Constitution and the Consumer Protection Act (No. 46 of 2012) and apply to goods and services offered by private and public entities. Consumer rights have also been provided for in the Competition Act.
LEGAL FORMS OF INCORPORATION IN KENYA In Kenya, there are a number of types of corporate entities including sole proprietorships, partnerships co‐operative societies and companies. The main vehicles utilized by investors are limited liability
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companies which can be incorporated either as private limited liability companies or as public companies. The law also allows for branches of foreign companies to be set up in Kenya.
The principal statute dealing with company law is the Companies Act (Cap 486) which is based substantively on the 1948 Companies Act of England. The Companies Act sets out provisions dealing with the incorporation of companies, share capital provisions, shareholder rights, offers to the public, the management and administration of companies, accounts, directors duties, consequences of winding up and the regulation of foreign companies based in Kenya.
Company registration is undertaken through the Companies Registry. The World Bank Group’s doing Business Report, 2013 ranked Kenya 121 out of 185 economies in ease of doing business, 100 in protecting investors, and 12th in getting credit. On average, completing the necessary registrations required for starting a business in Kenya takes 1‐2 months.
The table below provides a summary of the procedures and the estimated associated completion time and estimated official cost for setting up a private limited liability company:
Procedure Time to
complete
Cost to complete
1 Company name search and reservation 3 Days KES 100 per name reservation
2 Prepare and execute the memorandum and articles of association and ancillary incorporation documents.
2 days Variable
3 Stamp the memorandum and articles and a statement of the nominal capital
1 day 1% of nominal capital + KES 2020 stamp duty on Memorandum and Articles of Association
4 File incorporation documents with the Registrar of Companies and obtain a certificate of incorporation
2 days KES 2800
5 Register with the Tax Department for a PIN and VAT online
3 days No charge
6 Apply for a business permit 10 – 20 days Permit fees are depend on certain factors e.g. type of business, size of premises, number of employees etc.
7 Register with the National Social Security Fund (NSSF)
1 day No charge
8 Register with the National Hospital Insurance Fund (NHIF)
1 day No charge
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9 Register for PAYE 1 day No charge
10 Make a company seal after a certificate of incorporation has been issued
2 days Between KES 2,500 and KES 3,500
INDUSTRY SECTORS
Agriculture Agriculture is the mainstay of the Kenyan economy. The areas which have been most commonly invested in over recent years are agro‐processing, livestock, fisheries and horticulture. The latter has been the greatest success story of the past decade, particularly in floriculture.
There is considerable scope for diversification and expansion of the agricultural sector through accelerated food crop production and increase of non‐traditional exports. There are also opportunities for improvement in technology infrastructure such as packaging, storage, and transportation. Intensified irrigation and additional value added processing are also marketable areas for investments.
Financial and banking services There are over forty commercial banks in Kenya and several financial institutions including building societies and mortgage finance companies. However, the banking industry is dominated by four major banks: Kenya Commercial Bank Limited, Barclays Bank of Kenya Limited, Standard Chartered Bank Kenya Limited, and Equity Bank Limited. Credit is now more easily accessible from lending institutions. Credit reference information is shared in the financial sector though credit reference bureaus.
The majority of Kenyans engage in “mobile banking” through use of mobile payment systems operated by mobile communication companies such as M‐Pesa by Safaricom and Airtel Money by Bharti Airtel. Mobile phone payment services are popular due to their simplicity, convenience and accessibility.
Kenya has a vibrant micro‐finance sector. The Islamic banking market although nascent in Kenya is growing.
The banking industry is governed by the Banking Act (Cap. 488) and the Central Bank of Kenya Act (Cap. 491). The banking industry is regulated by the Central Bank of Kenya. The Central Bank has taken steps to regulate previously unregulated areas of the banking sectors, including micro‐finance and mobile payment services.
Kenya has a small but growing number of investment banks and venture capital funds. These are licensed and regulated by the Capital Markets Authority.
Telecommunications The telecommunications sector is one of the fastest growing sectors in Kenya fuelled by a growing market and development in fibre‐optics. There are currently 4 fibre optic cables which have landed on the Kenyan coast linking Kenya to the rest of the world. According to a survey by the Communications Commission of Kenya (CCK), mobile phone subscribers in Kenya are now over 30 million from 29.7 million in July 2012. Mobile internet users grew to 17.38 million as at December 2012 compared to 8.89 million users in the 2011.
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The ICT sector in Kenya is set to receive a significant boost from ICT business parks currently under development as part of Vision 2030. The Kenya Government has plans to develop a USD 10 billion ICT business park which will house IT centres, business process outsourcing centres and hotels. Kenya currently has an existing 5,000 seat business process outsourcing centre in the Sameer Industrial Park.
The telecommunications sector in Kenya is primarily governed by the Kenya Information and Communications Act, 1998 (the “KICA”). There are currently four mobile telecommunications providers in Kenya: Safaricom, partially owned by the Kenya Government; French‐owned Orange; Indian owned Bharti Airtel; and Indian‐owned Yu.
Manufacturing Although Kenya is the most industrially developed country in East Africa, the World Bank estimates that manufacturing still accounts for only 19% of GDP. Industrial activity, concentrated around the three largest urban centres of Nairobi, Mombasa and Kisumu, is dominated by food‐processing industries and the fabrication of consumer goods. A fast growing cement production industry is emerging in response to Kenya’s on‐going construction boom.
Opportunities in Kenya’s manufacturing industries are expansive, ranging from vehicle assembly and spare‐parts manufacturing in the automotive sector, to pharmaceuticals, paper products and edible oils.
Tourism The tourism sector is one of the most thriving and vibrant sectors in Kenya, and a lucrative field for consideration by any person wishing to invest in Kenya. Currently, tourism is Kenya’s third largest foreign exchange earner after tea and horticulture.
Kenya has substantial natural assets for tourism, ranging from well‐known areas such as the Maasai Mara, Mombasa and the Kenyan Coast, to relatively unexploited areas like Lake Victoria. Kenya’s tourist infrastructure is well‐developed and Nairobi is a major air transport hub in Africa, with direct flights from many tourism source countries and frequent internal connections.
The tourism industry is primarily regulated by the Tourist Industry Licensing Act (Cap. 381) and the Hotels and Restaurants Act (Cap. 494). The Kenya Tourism Board is tasked with developing the tourism sectors through policy development and financial investment.
Real estate and construction The real estate market and the building and construction sector have seen immense growth over the past 10 years. Due to a steadily growing middle class, there has been increased demand for housing in urban centres. There has also been increased demand for office establishments. There has been an increase in apartment blocks and gated estates as developers move to benefit from the growing demand. According to a 2011 survey by Hass Consult (a property consulting firm), property values have increased in Kenya by 302% since the year 2000. Kenya currently delivers greater price stability in real estate than other leading international markets such as the US, UK, UAE, India and South Africa. The growing market demand coupled with the high rates of return makes real estate development and building and construction two of the most lucrative investment opportunities in Kenya.
Mining, Oil and Gas While the mining sector makes a negligible contribution to Kenya’s economy, according to the Ministry of Environment and Natural Resources, there is great unexplored potential. Kenya’s mining map comprises four belts. The under‐exploited, gold‐rich Greenstone belt in western Kenya is linked to the lucrative mining belts currently under heavy exploitation in Tanzania. The Mozambique belt, which passes through
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central Kenya, is a source of gemstones. The Rift belt is the best known; its resources include soda ash, fluorspar and diatomite, as well as Kenya’s considerable geothermal resources and the coastal belt which encompasses existing titanium investments, as well as ongoing offshore oil exploration efforts. The country also boasts of being home to one of Africa’s richest coal deposits and plans to commercially exploit coal are currently underway.
Kenya is benefitting from a discovery of oil reserves in March, 2012 (the commercial viability of which is eagerly awaiting announcement). The discovery of oil has also resulted in significant interest in many onshore and off‐shore blocks offered to exploration companies by the Ministry of Energy. There has also been an increase in secondary sales of interests in exploration blocks between investors.
With the changing fortunes in the oil and mining sectors, the laws governing these sectors have come under scrutiny. The petroleum exploration activities in Kenya are primarily governed by a 1968 statute which is seen as outdated and in need of review. To this end, the Government aims to replace them with modern laws that are responsive to the present circumstances.
INTELLECTUAL PROPERTY Article 40(5) of the Constitution requires the State to support, promote and protect the intellectual property rights of the people of Kenya. Kenya has legislation for protection of intellectual property including: the Trademarks Act (Cap. 506); the Copyright Act (Cap. 130); and the Industrial Property Act, 2001, which relates to patents, industrial designs and utility models.
Regionally, Kenya is a member of the African Regional Intellectual Property Organization (ARIPO). Internationally, Kenya is a member of the World Intellectual Property Organization (WIPO) and is a contracting party to various treaties recognizing intellectual property rights such as the WTO Marrakech Agreement, 1994 (TRIPS), the Madrid System on the international registration of trademarks and the Patent Cooperation Treaty (PCT) on the international registration of patents.
Steps have been taken towards the control of importation of and trade in counterfeit goods. In 2008, Parliament passed the Anti‐Counterfeit Act, 2008 which established an agency and legal framework to police counterfeit goods.
All locally manufactured goods must have a standardization mark issued by the Kenya Bureau of Standards (KEBS), and several categories of imported wares must have an import standardization mark (ISM).
DISPUTE SETTLEMENT The judicial system consists of a hierarchy of various courts. These are magistrates courts and Kadhi’s courts; the High Court; the Court of Appeal; and the Supreme Court. There are also matter‐specific courts created by the Constitution. These are the Land & Environment Court to adjudicate disputes related to land and environment matters; and the Industrial Relations & Employment Court to hear matters related to employment.
Kenyan law recognizes alternative dispute resolution mechanisms. Arbitration is widely embraced in commercial dispute resolution settlement. Kenya is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and New York Convention awards would be
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recognised in Kenya under the Arbitration Act. Kenya is also a signatory to the International Convention for the Settlement of Investment Disputes (ICSID).
Foreign judgments from superior courts in certain reciprocating countries can be enforced in Kenya under the Foreign Judgments (Reciprocal Enforcement) Act (Cap 43) (the “FJEA”). The countries specified to be reciprocating countries under the FJEA are Australia, Malawi, Seychelles, Tanzania, Uganda, Zambia, the United Kingdom and the Republic of Rwanda.
Kenya has begun to implement significant changes in its judicial system. Pursuant to the new Constitution, the Supreme Court has been newly established as the highest court in the land. In addition, many new judges have been appointed to ease the workload of the courts. Further, the new constitutional requirement for the vetting of judges and magistrates has already resulted in some judges and magistrates having been found unfit to continue serving and who have been sacked. The process is expected to restore integrity in a judiciary that has been generally perceived to be slow in delivering justice, corrupt and not sufficiently independent.
CONCLUSION Overall the business landscape in Kenya is exciting and open to foreign investors. The new Constitution and the democratic principles that it enshrines, signals a positive change to the rights of anyone living or working in Kenya. However, due to the speed with which the legal landscape is changing with the rush of new laws that have been passed and are in the pipeline means that anyone proposing to do business in Kenya needs to do so with care and up to date legal advice.
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MALAWI Capital City: Lilongwe
Currency: Kwacha
Official languages: English and Chichewa
Government: Multi‐party democracy
President: Mrs. Joyce Banda
Population: 15 879 252 (July 2011 estimate) GDP : US$ 13.77 billlion (2011 estimate) Time Zone: CAT (UTC +2)
MALAWI FIRM PROFILE
SAVJANI AND CO.
Savani and Co. is one of the largest law firms in Malawi. The firm is listed as Malawi’s leading law firm by Chambers Global.
Based in Blantyre, the country’s commercial capital, the firm offers extensive insight into the opportunities and intricacies of Malawi’s economic and legal environments.
Savjani & Co. is recognized both for its depth of knowledge of the Malawian market and its international experience and skill level. The firm has an outstanding reputation amongst national and international corporations.
Savani and Co.’s client base includes major agricultural, banking, bottling, brewing, broadcasting, freight, forwarding, insurance, mining, telecommunications, petroleum, railway, sugar, tea and tobacco companies.
“The firm has vast experience in corporate matters, the advice is thorough and the lawyers pick up on the issues effectively” – Chambers Global 2013
Contact Information
A: Hannover House
P: P.O. Box 2790, Blantyre, Malawi
T: +265 1 824 555
F: +265 1 821 064
Email: savjaniandco@africa‐online.net
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MALAWI COUNTRY PROFILE
POLITICAL OVERVIEW Malawi is a democratic, multi‐party government consisting of executive, legislative and judicial branches. The executive branch includes the President who is both head of state and head of government and is elected every five years. The members of the cabinet are appointed by the President and can be from either inside or outside the legislature. The legislative branch consists of a unicameral National Assembly of 193 members who are elected every five years. The independent judicial branch is based upon the English model and consists of a Supreme Court of Appeal, a High Court, and subordinate Magistrate Courts. In constitutional matters, the High Court sits as a Constitutional Court with three judges presiding. An appeal from the Constitutional Court lies to the Supreme Court of Appeal with five judges presiding. The High Court also has a Commercial Division. There is also an Industrial Relations Court which is subordinate to the High Court.
There are currently about 40 registered political parties. The Peoples Party to the Democratic Progressive Party, which President Mrs Joyce Banda belongs to is the governing party and the Malawi Congress Party and the United Democratic Front act as the main opposition parties in the National Assembly. Suffrage is universal at 18 years of age.
ECONOMIC OVERVIEW Malawi is among the world's least developed and most densely populated countries. The economy is heavily agriculture‐based, with around 80% of the population living in rural areas. More than one‐third of GDP and 90% of export revenues come from agriculture. The economy of Malawi has in the past been dependent on substantial economic aid from the World Bank, the International Monetary Fund and individual nations.
The Government faces challenges in developing a market economy, improving environmental protection, dealing with the rapidly growing HIV/AIDS problem, improving the education system and satisfying its foreign donors that it is working to become financially independent.
Investment fell 23% in 2009 and continued to decline in 2010 largely due to the many investment barriers in Malawi, which the Government has failed to address, including high service costs and poor infrastructure for power, water and telecommunications.
REGULATORY ENVIRONMENT The government encourages both domestic and foreign investment in most sectors of the economy without restrictions on ownership, size of investment, source of funds, and destination of final product. Apart from the privatisation program, the government's overall economic and industrial policy does not have discriminatory effects on foreign investors. While not discriminatory to foreign investors, investments in Malawi require multiple bureaucratic processes, which may include licensing and land use permission that can be time consuming and may constitute an impediment to investment. Other impediments to investment include high transportation costs, unreliable power and water supplies, cumbersome bureaucracy (especially for imports and exports), difficulty in accessing foreign exchange, lack of skilled labour, and government market interventions.
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Malawi has so far privatised over 70 formerly state‐owned enterprises. All investors, irrespective of ethnic group or source of capital (foreign or local) may participate in the privatisation program.
In accordance with the Business Licensing Act, where a business licence holder sells its business premises and wishes to transfer the business licence to the buyer, the buyer is required to make application to the relevant licensing authority under the Business Licensing Act. It follows that if a Malawian subsidiary of a foreign holding company is the holder of a business licence and it seeks to transfer its business pursuant to any restructuring of the foreign group of companies under which it falls, it will be required to make application to the relevant licensing authority under the Business Licensing Act. If a Malawian subsidiary will remain the holder of the licence in Malawi pursuant to a restructuring of the foreign group of companies under which it falls, a change of control in the shareholding of the foreign holding company of the Malawian subsidiary will not affect the licence. A new Business Licensing Act is expected to come into force in May 2013.
Malawi's industrial and trade reform program, including rationalisation of the tax system, liberalisation of the foreign exchange regime, and elimination of trade and industrial licenses on several items and businesses, has produced written guidelines intended to increase government use of transparent and effective policies to foster competition.
Malawi has legislation that offers adequate protection for property and contractual rights. Malawi has written commercial laws, which codify common law. The Sale of Goods Act, the Hire‐Purchase Act, the Competition Fair Trading Act and Companies Act cover commercial practices. There is also a written and consistently applied Bankruptcy Law based on the common law. Under Bankruptcy Law, secured creditors have first priority in recovering money.
Bi-Lateral and Multi-Lateral Treaties Malawi is a member of many multi‐lateral organizations and a signatory to many trade agreements.
These include:
the Common Market for Eastern and Southern Africa, the Southern African Development Community, SADC, the World Trade Organisation, WTO; the New Partnership for Africa’s Development, NEPAD; the World Customs Organization, WCO; the African Caribbean Pacific – European Union (ACP‐EU) Partnership Agreement; the Multilateral Investment Guarantee Agency, MIGA; and International Centre for the Settlement of Investment Disputes, ICSID.
INVESTMENT PROMOTION
Institutions governing investment promotion In 2012, the Government passed an Investment and Export Promotion Act, which provides tax benefits to investors and pioneer industries in agriculture, agro‐processing, manufacturing, tourism, fisheries, forestry, mining, etcetera. The Malawi Investment and Trade Centre Limited was incorporated on 2nd December, 2010 to promote and facilitate both domestic and foreign investment.
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Investment incentives Malawi offers a wide range of tax incentives aimed to encourage development, enhanced output, foreign exchange earnings, and expansion of employment opportunities.
Investors qualify for Export Processing Zones (EPZ) privileges by operating at an approved location and acquiring a license to manufacture goods under bond. This requires approval by an appraisal committee. Incentives for establishing operations in an EPZ include:
1. no withholding tax on dividends; 2. no duty on capital equipment and raw materials; 3. no excise tax on the purchases of raw materials and packaging materials made in Malawi; and 4. no Value added tax.
Tax measures are reviewed annually in Malawi. In June 2011 Malawi has announced new tax measures. Previously, incentives for establishing operations in an EPZ included zero corporate tax however companies will now be subject to standard corporate tax of 30%.
Previous tax breaks for industrial buildings, plants and machinery granted to companies under a free trade zone would be reduced to 40% from 100%.
Incentives for manufacturing in bond include:
1. export allowance of 12% revenue for non‐traditional exports; 2. transport tax allowance equal to 25% of international transport costs, excluding traditional
exports; 3. no duties on imports of capital equipment used in the manufacture of exports; 4. no surtaxes; 5. no excise tax or duty on the purchase of raw materials and packaging materials; 6. a timely refund of all duties (duty drawback) on imports of raw materials and packaging
materials used in the production of exports.
Companies operating in priority industries so designated by the Minister of Trade and Industry are eligible for a tax holiday of either:
1. 10% for such period not exceeding 10 years; or 2. 15% throughout the period of operation. (However, it is pertinent to note that no industry has
yet been designated as a priority and as such, no tax holidays are operational to date).
TAX
Income tax Only income from a source within or deemed to be within Malawi is subject to tax. Non‐residents are only taxed on the portion of their income which arises or is deemed to arise in Malawi. Non‐residents are subject to 15% withholding tax on income arising in Malawi.
Trading losses may be carried forward for six years, unless derived from manufacturing, mining or agriculture, in which case they may be carried forward without restriction. Capital losses of assets that attracted capital allowances are fully deductible. Other capital losses may be deducted only against capital gains realised in the same or future years.
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Corporate tax 30%
Fringe benefits tax 30%
Capital gains Taxed as ordinary income
Dividends 10% (tax withheld at source and is final)
Interest 30% of which 20% withheld gross at source in many cases
Royalties 30% of which 20% withheld gross at source in many cases
Fees 30% of which 20% withheld gross at source in many cases
Rents 30% of which 20% withheld gross at source in many cases
Foreign companies 35% (or a rate 5% higher than normal)
Income tax is levied on non‐residents as follows:
Border tax 15% on gross income (tax is withheld at source)
Capital gains Taxed as ordinary income
Dividends 10% (Tax is withheld at source and is final)
Interest 15% (Tax is withheld at source and is final)
Royalties 15% (Tax is withheld at source and is final)
Fees 15% (Tax is withheld at source and is final)
Rent 15% (Tax is withheld at source and is final)
Capital gains tax Capital gains are treated as ordinary income and subject to income tax at the applicable rate. There are a number of exemptions relating mainly to group restructurings, principal residence, transfers between spouses and shares listed on the stock exchange, provided it had been held for more than one year as well as personal and domestic assets.
Non‐residents pay border tax at the rate of 15%, if not engaged in trade or business in Malawi through a permanent establishment situated in Malawi.
Other tax VAT is payable at the rate of 16.5% of the value of the goods or services supplied or imported. A 1% tax‐deductible levy of payroll costs is payable annually to the Technical, Entrepreneurial and Vocational Education and Training Authority. Property taxes are assessed by the local authorities, based on land valuations conducted every five years. Mineral rights duties are charged as royalties on the sale of minerals.
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Effective from 1 July 2009, a turnover tax, at a rate of 2%, is payable on business income where the annual turnover exceeds MWK2 million but does not exceed MWK6 million. Turnover tax does not apply in respect of rental income, management or training fees, the income of incorporated companies and income subject to withholding tax. A person that qualifies to pay turnover tax may elect, by writing to the Commissioner, not to be subject to the tax, in which case the normal provisions of the Taxation Act would apply.
Transfer pricing and thin capitalisation Transfer pricing rules were introduced as from 1 July 2009 and the tax authorities have the power to deem profits to have accrued in situations where non‐arm's length transfer pricing is believed to exist. While there is no thin capitalisation legislation in Malawi, a deemed dividend will be imposed where the debt‐to‐equity ratio exceeds 3:1.
Stamp and transfer duty Stamp duty is charged at nominal or ad valorem rates on a variety of financial instruments and transactions. Registration fees are payable based on the authorised share capital of a company upon incorporation. The fees are K25,000.00 plus K500 on the first K1,000 of the authorised capital and K20.00 for every K2,000.00 of the authorised capital or any part thereof. Fees for registration of a notice of increase of share capital are 1% of the amount by which the share capital is increased. Stamp duty of 3% is chargeable on the transfer of real and personal property.
Double tax treaty with Mauritius Yes, but the treaty is still awaiting ratification.
EXCHANGE CONTROL The Reserve Bank of Malawi administers exchange controls in terms of the Exchange Control Act and the Regulations and directives made thereunder. Authorisation is required for all remittances of profits, dividends, interest, royalties and fees. The mandatory conversion requirement for proceeds of exports is 60% though a lower ratio may be permitted on legitimate grounds. Most goods can be freely imported under the open general licence system.
Imports and exports The Malawian economy's demand for processed products, machinery, vehicles and other manufactured products has resulted in the country's imports surpassing the value of its exports. Malawi's total value of imports increased by 26% from 2010 to 2011. The top three countries from which Malawi imports merchandise are South Africa, China and India.
Tobacco is Malawi's major export product, in 2011 tobacco contributed 30% of the total exports, and uranium was the second largest contributor with 12.3% and was followed by sugar with 11.6%.
Malawi's major export destinations are South Africa, Egypt and Zimbabwe however, in 2011 Canada was its major export destination.
ACCOUNTING PRINCIPLES IFRS has been adopted. All company annual financial statements require audits.
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INDUSTRIAL RELATIONS The Labour Relations Act of Malawi promotes sound labour relations through the protection and promotion of freedom of association, the encouragement of effective collective bargaining and the promotion of orderly and expeditious dispute settlement, conducive to social justice and economic development.
The Employment Act establishes, reinforces, and regulates minimum standards of employment with the purpose of ensuring equity necessary for enhancing industrial peace, accelerate economic growth and social Justice and for matters connected therewith and incidental thereto.
The Workers’ Compensation Act provides for compensation for injuries suffered or diseases contracted by workers in the course of their employment or for death resulting from such injuries or diseases; it provides for the establishment and administration of a Workers’ Compensation Fund; and it provides for matters connected therewith or incidental thereto.
Expatriate employees (of both domestic and foreign businesses) who reside and work in Malawi must obtain temporary employment permits. Government policy on expatriates is set out in the "Policy Statement and New Guidelines for the Issuance and Renewal of Expatriate Employment Permits" issued in November 1998, which provides that investors may only employ expatriate personnel in areas where there is a shortage of "suitable and qualified" Malawians. The policy provides for two types of temporary work permits:
i. those for "key posts" (defined as positions of "strategic importance" in business operations) which are granted for the lifespan of the organisation; and
ii. those for "time posts" (defined as positions with contracts of two year duration or less) which are granted for three year periods and renewable once.
The government issues Business Residence Permits to foreign nationals who own/operate businesses in Malawi. These permits are issued for five year periods and are renewable. Permanent Residence Permits are issued to foreign spouses who reside permanently in Malawi, and to owners/operators of businesses who reside in Malawi for periods in excess of ten years. The maximum number of resident permits per organisation is five, with the actual number allowed depending on the amount of investment.
REAL PROPERTY Under Malawi law, citizens, as well as non‐citizens and foreign companies, can lease land from the Government or directly from private landowners for investment purposes in accordance with their residential and investment objectives. Citizens and non‐citizens can also purchase land, though in the case of a sale to a non‐citizen, the intention to sell has to be advertised in daily newspapers to give citizens the first option to purchase. A process to reform land law is currently in progress.
CORRUPTION Malawi has been highly affected by corruption. Major instances of corruption often involve public procurement, and the offering of lucrative public contracts bends to patronage systems. The World Bank & International Finance Corporation Enterprise Surveys 2006 have reported that 47% of companies consider corruption in Malawi to be a major constraint for operating a business and another 35% had to pay bribes to 'get things done'. However a change in perception of corruption in Malawi has occurred, in accordance with the World Bank and IFC Enterprise Surveys 2009 only 12.8% of the companies surveyed
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perceive corruption as a major constraint for doing business and 10.8% indicate that they expect to pay bribes to 'get things done'. This change in perception might be influenced by the establishment of the Business Action Against Corruption (BAAC) initiative and the drafting of a Business Code of Conduct in 2006. The BAAC was established in Malawi as a joint initiative between the business community and representatives of government, civil society and donor agencies as well as the media.
Apart from the ratification of the United Nations Convention against Corruption and the African Union Convention on Preventing and Combating Corruption in 2007, the Malawian government also have the Corrupt Practices Act, 1995. This Act established the Anti‐Corruption Bureau in 1995. Malawi's Penal Code prohibits bribery. Giving or receiving a bribe, whether to or from a Malawian or foreign official, is a crime under section 90 of Malawi's Penal Code.
The government in an attempt to fight corruption established a National Anti ‐ Corruption Strategy in January 2009. The strategy has a holistic approach to the fight against corruption in Malawi and its main focus is the development of a National Integrity System. The 2006 Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act established an autonomous Financial Intelligence Unit ("FIU") to combat money laundering and terrorist financing. The FIU is responsible for analysing disclosures from financial institutions and referring actionable cases to competent authorities. It is also mandated to monitor compliance by reporting institutions.
COMPETITION The Malawian Competition and Fair Trading Act, (cap 48:09) of the Laws of Malawi regulates competition law in Malawi. In terms of the Act, a merger is defined as:
1. the acquisition of a controlling interest in: a. any trade involved in the production or distribution of any goods or services; b. an asset which is or may be utilised for or in connection with the production or
distribution of any commodity where the person who acquires the controlling interest already has controlling interest in any undertaking involved in the production or distribution of the same goods or services; or
2. the acquisition of a controlling interest in any trade whose business consists wholly or substantially in:
a. supplying goods or services to the person who acquires the controlling interest; or b. distributing goods or services produced by the person who acquires the controlling
interest.
Mergers are required to be notified to the Competition and Fair Trading Commission ("the Commission") prior to implementation if they are likely to substantially lessen competition. The applicable filing fee as contained in the 4th Schedule of the Act is 0.05% of combined turnover or total assets, whichever is the higher, of the enterprises proposing to effect the merger or takeover,
The Competition and Fair Trading Act requires that "any person who, whether as a principal or agent" participates in effecting a merger or takeover should apply to the Competition and Fair Trading Commission for approval before effecting the proposed merger or takeover where such merger or takeover is likely to result in substantial lessening of competition in any market.
Counsel in Malawi has advised that the practical application of the Competition and Fair Trading Act is that unless the parties are certain that the proposed merger or takeover is not likely to result in a
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substantial lessening of competition, it is advisable that they seek the Competition and Fair Trading Commission's prior approval.
If a merger is not notified to the Commission, and it is found that such merger is likely to result in substantial lessening of competition, such merger shall have no legal effect and the rights and obligations imposed on the parties to the agreement shall not be legally enforceable. In addition, a principal or agent who carries out a merger without the Commission's authorisation commits an offence and may be imprisoned for a period of up to five years. Alternatively, this principal or agent may be liable for a fine of K500 000 (approx US$3 268.61), or an amount equivalent to the financial gain generated by the offence, if such amount is greater, such a person is also liable to imprisonment for a period of five years.
CONSUMER PROTECTION The Consumer protection Act and the Competition and Fair Trading Act provide protection for consumers.
LEGAL FORMS OF INCORPORATION IN MALAWI The principal business entities are
i. a company limited by shares where the liability of members is limited to the unpaid amount on shares,
ii. a company limited by guarantee where the liability of members is limited to the amount undertaken to be contributed, and
iii. an unlimited company where there is no limit on the liability of the members.
A company may either be private or public. In a private company the number of shareholders is limited to 50, the right of the shareholders to transfer shares is restricted, and the company is prohibited from making invitations to the public for the acquisition of its shares and debentures. A public company issue shares to the public and has no limit on the number of shareholders it may have. In both types of companies, the minimum amount of shareholders is two.
The registration of a foreign company may be more tedious than registering a local company in terms of information required. However, after incorporation, neither entity has any significant advantage over the other.
There are no regulations in Malawi regulating joint ventures, other than compliance with company law and other applicable law.
A company may be incorporated within one week. The following information is required to register and incorporate a company: name of company, authorised share capital, registered office, location of books of accounts, address of the company secretary, and names of directors and shareholders. There are no nationality requirements for directors but the majority of the directors must be resident in Malawi. There are also no minimum capitalisation requirements but the practice is MK10 000.
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INDUSTRY SECTORS
Agriculture A lush climate and rich soil make Malawi well suited for agriculture, which is central to the country's economy and national life, occupying 87% of its workforce, and making up 34.7% of its GDP and represents about 80% of all exports.
The main staple crop is maize, grown by smallholder farmers mostly at the subsistence level. Production varies, and depending on climate conditions, maize may be imported or exported. Sorghum, millet, pulses, root crops, and fruit are also grown. The fishing industry in respect of Lake Malawi accounts for about 200 000 jobs, but problems with pollution and over‐fishing threaten to reduce yields.
Malawi's commercial farming sector is concentrated on large estates in the south and around Lilongwe. Its main product is tobacco, which typically accounts for between 50% and 70% of Malawi's export earnings. Formerly held back by government price controls and grower regulations, the liberalisation of the industry in the 1990s has seen steady increases in profits for growers and a sharp rise in smallholder tobacco production, making Malawi one of the leading tobacco producers in the world. Nevertheless, the industry as a whole has been hard hit by the drop in world tobacco prices, which has cut tobacco export revenues from US$332 million in 1998 to US$218 million in 2000. Tea is Malawi's second most important cash crop, and Malawi is Africa's second largest producer of it. In 2010 tea accounted for about US$65.8 million. Sugar is also a large export product.
Financial and banking services Malawi has a sound banking sector, overseen and well regulated by the Reserve Bank of Malawi. There are 10 full service commercial banks with the three largest banks commanding 60% of the market. The Malawi Stock Exchange is governed by the Companies Act, the Financial Services Act 2010 and Securities Act, 2010. The Competition and Fair Trading Act does not cover the day‐to‐day trading of the stock exchange but does regulate mergers, acquisitions, and takeovers that are of national interest. Stockbrokers Malawi Limited ("SML") is the major registered stockbroker in Malawi. SML runs a secondary market in government securities, and both local and foreign investors have equal access to the purchase of these securities.
Energy The state‐owned Petroleum Control Commission (PCC) relinquished its monopoly on petroleum imports in May 2000, allowing the private sector to import Malawi's entire fuel requirements. Regulatory functions within the petroleum sector are performed by Malawi Energy Regulatory Authority. Fuel prices are not controlled.
Electricity generation comes mostly from the 4 hydro‐electric power stations on the Shire River. But irregular water flow on the river, especially in the dry season, and problems with silting often make power supplies unreliable, a problem particularly damaging to industry. Coal is imported to supplement local production, which because of under‐investment, is mined below capacity.
Manufacturing The majority of Malawi's industrial activity (85%) comes from manufacturing. Malawian manufacturing is carried out by about 100 companies involved in agricultural processing, textiles, clothing, and footwear production. Manufacturing accounts for about 12% of Malawi's GDP. The economic review by National Statistical Office (NSO) placed Canada as the top market for Malawi's exports at 60.8% in 2011. Some of Malawi's export markets allow firms to import duty or quota free if a certain percentage of the local
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content in the finished product is reached however this requirement is rarely satisfied by the manufacturers.
Mining Mining remains small‐scale, and Malawi has no precious metals or oil, but ruby mining began in the mid‐1990s, with Malawi being the only source of rubies in Africa. Malawi also has deposits of bauxite, asbestos, graphite, and uranium. Most of the mining and mineral processing operations in Malawi are privately owned, including the cement plants, the Kayelekera uranium mine, the Mchenga coal mine, and the Nyala ruby and sapphire mine. Small ‐ scale and artisanal miners produced aggregates, brick clay, gemstones, and lime.
In 2010, uranium production increased by 587%; sulfuric acid, by an estimated 493%; ornamental stone, by 80%; coal, by 34%; lime, by 23%; and limestone for use in the cement industry, by 22%. Bentonite production decreased by 87% in 2010, and gemstones, by 33%. After the establishment in 1985 of a government mines department and a national mining agency to explore the feasibility of exploiting various minerals, bauxite and titanium reserves in the south were singled out for development. Although the supporting infrastructure is weak, some foreign investment has been attracted.
Telecommunications Telecommunications is an underdeveloped sector, with a mere 45000 landlines, or one for every 230 Malawians. Malawi has several Internet service providers. The government has established the Malawi Communication Regulatory Authority, which has licensed four cellular phone service providers, two of which are operating namely, Telekom Neworks Malawi and Airtel and the splitting of the former parastatal Malawi Posts and Telecommunication Corporation into the Malawi Posts Corporation and Malawi Telecommunications Limited as separate entities. Malawi Telecommunications Limited has been privatised.
Tourism Malawi's ‐ tropical climate and scenic landscape have seen rapid gains in the industry, with visitor numbers climbing to 215 000 in 1999, a 20% increase from 1995. Efforts are being made to expand facilities and boost numbers.
INTELLECTUAL PROPERTY Rights to property, both real and intellectual, are legally protected.
The Copyright Society of Malawi ("COSOMA"), established in 1992, administers the Copyright Act, 1989, which protects copyrights and "neighbouring" rights in Malawi.
The Registrar General administers the Patent and Trademarks Act, which protects industrial intellectual property rights in Malawi.
A public registry of patents and patent licenses is kept. Patents are registered through an agent. Trademarks are registered publicly following advertisement and a period of no objection. WTO rules allow Malawi (as a less developed country) to delay full implementation of the Trade‐Related Aspects of Intellectual Property Rights ("TRIPs") agreement until 2016. The Ministry of Trade and Industry ("MTI"), coordinator of WTO issues in Malawi, has limited capacity to effectively track WTO developments. The MTI is working with COSOMA and the Registrar General to align relevant domestic legislation with the WTO TRIPs agreement with technical assistance from the Africa Regional Intellectual Property Organization ("ARIPO").
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Government has signed and adheres to bilateral and multilateral investment guarantee treaties and key agreements on intellectual property rights.
Malawi is a member of the convention establishing the multilateral investment guarantee agency, the World Intellectual Property Organisation, the Berne Convention, and the Universal Copyright Convention.
DISPUTE SETTLEMENT Malawi has an independent judiciary, which derives its procedures from English Common Law. The commercial courts generally work efficiently and there is a fully established mediation process to promote agreements between parties in disputes before court proceedings start.
Although the processing of commercial cases has improved significantly, the enforcement of judgments continues to be a problem. The Commercial Court has no dedicated enforcement sheriffs. Sheriffs assigned to the High Court are used, who do not accord priority to commercial enforcements.
The court system in Malawi accepts and enforces foreign court judgments that are registered in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation.
Monetary judgments are usually made in the investor's currency. However, the immediate availability of foreign exchange is dependent upon supply, which varies on a seasonal basis and was chronically low throughout 2011.
Malawi is a member of the International Centre for Settlement of Investment Disputes (ICSID), and accepts binding international arbitration of investment disputes between foreign investors and the state if specified in written contract.
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MAURITIUS
Capital City: Port Louis
Currency: Mauritian rupee (MUR)
Official languages: English, French, Creole, Bhojpuri
Government: Parliamentary Republic
President: Rajkeswur Purryag
Prime Minister: Navin Ramgoolam
Population: 1,313,095 (July 2011 estimate)
GDP (purchasing power parity): US$ 19.28 billion (2011 estimate)
Time Zone: GMT +4
MAURITIUS FIRM PROFILE
BLC CHAMBERS
The island of Mauritius has positioned itself as one of the most successful, diverse and competitive economies in Africa. With its vast array of double taxation treaty agreements and its modern financial regulatory framework, Mauritius is recognised as a gateway jurisdiction for global investment in Africa.
BLC Chambers is a leading Mauritian firm with a robust offshore practice and a strong team of legal advisors.
The firm was established in 2005 by lawyers with a strong experience in advising international companies, financial institutions, domestic corporations, government entities and high net worth individuals.
BLC is praised for its strong relationships with economic operators, regulators and government authorities and its determination to provide cutting edge legal advice. Chambers Global, IFLR 1000 and PLC Which Lawyer? all recognize BLC Chambers as a leasing law firm in Mauritius.
“We rate BLC highly across a range of different areas, including fund formation and financial regulatory work” – Chambers Global 2013
Contact Information
A: 5th Floor, Unicorn Centre
18N, Frère Félix de Valois Street
T: +230 213 7920
F: +230 213 7921
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MAURITIUS COUNTRY PROFILE
POLITICAL OVERVIEW Mauritius is a parliamentary representative democratic republic. The President is the head of state and the Prime Minister is the head of government. Legislative power is vested in both the government and a unicameral parliament. The Supreme Court is the highest judicial authority.
The Mauritian government is elected on a five‐year basis. The most recent elections took place on 31 March 2012.
Mauritius has a long tradition of political and social stability and is internationally recognised for its well‐established democracy. According to the 2012 Ibrahim Index of African Governance, which measures governance using a number of different variables, Mauritius' government earned the highest rankings among African nations for "participation in human rights" and "sustainable economic opportunity", as well as earning the highest score in the index overall for the sixth consecutive time.
ECONOMIC OVERVIEW Mauritius has one of the most successful, competitive and diversified economies in Africa. The country's success has been built on a free market economy. The economy is based on tourism, textiles, sugar, and financial services.
With the 4th highest Gross Domestic Product ("GDP") per capita in Africa, Mauritius is one of only three African nations with a "high" Human Development Index rating. Mauritius also has a per capita income of USD $15,100 (2011 est.) one of the highest in Africa.According to the 2012 Index of Economic Freedom of the U.S. based Heritage Foundation, Mauritius leads Sub‐Saharan Africa in economic freedom and is ranked 8th worldwide.
REGULATORY ENVIRONMENT During the last four years, the government significantly reformed trade, investment, tariff, and income tax regulations, simplifying the framework for doing business.
Mauritius has a long‐standing tradition of government and private sector dialogue which allows the private sector to effectively voice its views on the development strategy of the country. The Joint Economic Council, the coordinating body of the Mauritian private sector, is a key vehicle in this regard. A Central Procurement Board, established under the Public Procurement Act 2006, oversees all forms of procurement by public bodies. The World Economic Forum’s 2012‐2013 Global Competitiveness Report places Mauritius 2nd in Africa (after South Africa) and 54th in the world in terms of competitiveness.
BILATERAL AND MULTILATERAL TREATIES Mauritius is a member of the Commonwealth of Nations, La Francophonie, the World Trade Organisation ("WTO"), the African Caribbean Pacific‐European Union Cotonou Agreement, the Common Market for Eastern and Southern Africa (“COMESA”), the Southern African Development Community (“SADC”), the Indian Ocean Rim ‐ Association for Regional Cooperation and the Indian Ocean Commission.
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Bilateral trade agreements have been entered into with Central African Republic, Egypt, Hungary, Madagascar, Pakistan and Zimbabwe, Turkey and India
Mauritius has signed 22 Investment Promotion and Protection Agreements with Barbados, Belgium/Luxembourg Economic Union, Burundi, China, Czech Republic, Finland, France, Germany, India, Indonesia, Madagascar, Mozambique, Pakistan, Portugal, Republic of Korea, Romania, Senegal, Singapore, South Africa, Sweden, Switzerland and U.K. and Northern Ireland, which are currently in force. Investment Promotion and Protection Agreements with the following countries are awaiting ratification: Benin, Botswana, Cameroon, Chad, Comoros, Ghana, Guinea Republic, Mauritania, Nepal, Republic of Congo, Rwanda, Swaziland, Tanzania and Zimbabwe. These Investment Promotion and Protection Agreements provide for free repatriation of investment capital and returns and guarantee against expropriation. They also provide for a most favoured nation rule with respect to treatment of investors, and compensation for losses in case of war, armed conflict. They also include arrangements for the settlement of disputes between investors and the contracting states.
Mauritius has concluded 36 double taxation avoidance treaties and is party to a series of treaties under negotiation. The 36 treaties currently in force are with the following countries: Barbados, Belgium, Botswana, Croatia, Cyprus, Sri Lanka, France, Germany, India, Italy, Kuwait, Lesotho, Luxembourg, Madagascar, Malaysia, Mozambique, Namibia, Nepal, Oman, Pakistan, Bangladesh, China, Rwanda, Senegal, Seychelles, Singapore, South Africa, Qatar, Swaziland, Sweden, Thailand, Tunisia, Uganda, United Arab Emirates, United Kingdom and Zimbabwe.
Three tax treaties with Russia, Congo and Zambia are awaiting ratification and five tax treaties with Egypt, Kenya, Malawi, Nigeria and Ghana are awaiting signature.
INVESTMENT PROMOTION
Institutions governing investment promotion A transparent and well‐defined investment code and legal system have made the foreign investment climate in Mauritius one of the best in the region. Following reforms initiated in 2006, Mauritius has attracted more than USD 1 billion from foreign investors. In 2012, foreign direct investment was estimated at close to USD 281 million.
Investment in Mauritius is governed by the Investment Promotion Act, 2000 ("Investment Act"). Investment regulations are consistent with the WTO's Agreement on Trade Related Investment Measures (TRIMs). The Mauritius Board of Investment ("MBOI") is a government agency which aims to promote and facilitate investment in Mauritius. The MBOI acts as a one‐stop agency for business registration, acts as the facilitator for all forms of investment in Mauritius and guides investors through the necessary processes for doing business in the country.
Investment incentives Investment incentives are applied uniformly to both domestic and foreign investors. Mauritius offers the following incentives to investors:
• a flat corporate and income tax rate of 15%; • tax free dividends; • no capital gains tax; • up to 100% foreign ownership; • exemption from customs duty on equipment;
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• free repatriation of profits, dividends, and capital; • no minimum foreign capital required; • 50% annual allowance on declining balance for the purchase of electronic and computer
equipment; and • an extensive tax treaty network with several countries.
Investors can obtain free‐port licences under the Investment Act, under which persons may be exempt from income tax or subject to tax at 15% under specified conditions.
The Real Estate Scheme introduced in 2007 allows non‐citizens to acquire a residence with no minimum price set. Investors, their spouses and dependents are granted resident permits to live in Mauritius when a residential property is acquired for a price exceeding USD 500, 000.
TAX
Income tax Resident companies and businesses are taxed on worldwide income. Non‐residents are taxed only on Mauritius‐source income. A company is resident if it is incorporated in Mauritius or its central management and control is in Mauritius. An individual is resident if domiciled in Mauritius, spends more than six months of the tax year in Mauritius, or has a combined presence of at least 270 days in that tax year and the two preceding tax years.
Losses may be carried forward for five years, except for losses arising from annual allowances on capital expenditure incurred after 1 July 2006. The carry‐back of losses is not permitted.
Income tax is levied on resident companies as follows:
Corporate tax:
• General
• Tax incentive companies
15%
15%
Dividends:
Dividends paid by a Mauritian‐resident company are exempt from income tax. Foreign dividends are taxable
Interest: Taxed as ordinary income
Royalties: Taxed as ordinary income
Fees: Taxed as ordinary income
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Income tax is levied on non‐resident companies as follows:
Corporate tax 15%
Category 1 global business licence companies 15% less foreign tax credit
Dividends Dividends paid by a Mauritian‐resident company are exempt from income tax.
Interest Taxed as ordinary income, subject to available exemptions and tax credits
Royalties Taxed as ordinary income, subject to available exemptions and tax credits. A 0% rate applies to specified non‐residents.
Fees:
• directors' fees • consultancy fees
• taxed as ordinary income; • taxed as ordinary income.
Withholding tax Interest and royalties are taxed as ordinary income, withheld at the source.
Capital gains tax No capital gains tax is levied in Mauritius.
Other tax The basic rate of VAT is 15%. Certain goods and services are subject to VAT at zero rate and certain are exempt from VAT. The registration threshold is MUR4million.
Employers are required to make pay‐related social security contributions.
A national property tax is levied on residential property.
Transfer pricing and thin capitalization Mauritius does not have transfer pricing regulations. However, the Income Tax Act, 1995 provides that transactions between related parties should be at market value.
Similarly, Mauritius does not have thin capitalisation rules. However, the Income Tax Act, 1995 provides that the Director‐General may disallow interest expense payable to shareholders under certain conditions.
Stamp and transfer duty Stamp duty of MUR100 is levied on each document presented for registration to the Registrar General or Conservator of Mortgages. A duty of 5% is levied on share transfers of a company which includes in its assets any freehold or leasehold property while 20% is charged when a company has leasehold rights on state land. No duty is payable on the transfer of shares quoted on the Stock Exchange of Mauritius and on the shares of a category 1 global business licence company.
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Transfer duty of 5% and land transfer tax of 5‐10% is payable on the sale or transfer of immovable property.
EXCHANGE CONTROL Exchange controls were suspended by the Finance Act, 1994. Consequently, no approval is required for the repatriation of profits, dividends, and capital gains earned by a foreign investor in Mauritius.
IMPORTS AND EXPORTS Mauritius is gearing towards becoming a duty‐free island within the next four years. Duty has been eliminated for several products and decreased for more than 1850 products including clothing, food, jewellery, photographic equipment, audio visual equipment and lighting equipment. From 1 July 2009, all permits relating to imports and exports, except those considered essential, have been suspended.
The Mauritius Freeport (free‐trade zone) was established in 1992 as a customs‐free zone for goods destined for re‐export.
ACCOUNTING PRINCIPLES Mauritius applies International Accounting Standards (IAS) and International Financing Reporting Standards (IFRS).
INDUSTRIAL RELATIONS The Constitution and the law of Mauritius provide for the right of workers to form and join unions of their choice without prior authorisation or excessive requirements, and workers exercise this right in practice. Under the Industrial Relations Act, 1973, workers have the right to strike, but with some limitations. The National Remuneration Board (the “NRB”) sets minimum wages for non‐managerial workers, although most unions negotiate wages higher than those set by the NRB.
In February 2009, the Employment Rights Act and the Employment Relations Act came into force. The new legislation provides for a Workfare Program under which workers who have been laid off will benefit from government financial assistance for up to twelve months and opportunities for training to increase their employability.
Mauritius participates actively in the annual International Labour Organisation ("ILO") conference in Geneva, and adheres to ILO conventions protecting worker rights.
Work permits are required for expatriates seeking employment in Mauritius. In general, work permits are granted provided that a contract of employment is in place and local citizens do not possess the necessary expertise. An occupation permit giving a right to a three year residence period can be granted to an investor setting up business with an annual turnover exceeding MUR3 million. On expiry of the occupation permit, investors may apply for permanent residence status if their business activities generates an annual turnover exceeding MUR15 million (approximately USD 462,000) during the first three years.
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REAL PROPERTY The real estate market in Mauritius has emerged as a sector with competitive opportunities for investors, small landowners and non‐citizens wishing to reside in the country.
The legal environment guarantees protection of the rights of sellers and purchasers. Effective administration has simplified and facilitated the ease of business transactions related to residence permits and acquisition of property. Coupled with a low tax regime, political and financial stability, the country provides investors with a secure platform for property development.
The real estate sector in Mauritius provides an array of opportunities for both commercial and residential purposes.
Commercial property The commercial property market in Mauritius allows for the development of different property types such as:
• Hotels • Shopping malls and duty free shops • Office buildings • Business and industrial parks
When acquiring property for business purposes or for the lease of immovable property for a period exceeding 20 years for business purposes, the investor needs to apply for approval from the MBOI.
A business purpose is considered to be the acquisition of property for:
• Development of active commercial buildings, • Residential properties developed under the IRS or RES, • Any activity carried out with the purpose of profit excluding residential properties not developed
under the IRS or RES and the acquisition for lease, resale or rental of a bare or serviced land.
Residential property The residential real estate market is also expanding through the development of luxury residential properties. In Mauritius, this market has been developed under two schemes, the Integrated Resorts Scheme (IRS) and the Real Estate Scheme (RES). They are both in place to facilitate the acquisition of luxury residential property by non‐citizens.
TheIntegratedResortsScheme(IRS)The IRS involves the construction and sale of luxurious residential property to foreigners with a high purchasing power. The IRS also includes high class leisure and facilities for instance, golf courses, shopping malls, wellness centres and sport facilities. Furthermore, contribution to the community is guaranteed. With the grant of a residence permit to foreigners on the purchase of a residence under the scheme, the IRS is an upcoming market.
The IRS requires only a short investment period and has no minimum restrictions on the selling price as well as a possibility for tax residency in Mauritius and is, therefore, considered to be a competitive investment opportunity.
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TheRealEstateScheme(RES)The RES allows development of residence property in Mauritius but on a smaller scale than the IRS. This scheme is aimed at investors and professionals who wish to reside and work in Mauritius or to acquire a luxury second home.
Moreover, commercial and leisure facilities are also tied up to the residences. The fact that there is no minimum price for a residence is a facilitator for ownership and an opportunity for considerable profits.
Acquisition of property by a non-citizen Any foreigner who wishes to hold or acquire freehold or leasehold immovable property in Mauritius must obtain authorization from either the Prime Minister’s Office or the MBOI.
Non‐citizens must obtain authorisation from the Prime Minister's office in respect of:
• Acquisition of shares in company holding freehold or leasehold immovable property; • Acquisition of immovable property by a person not registered as investor with BOI; • Lease of immovable property for more than 20 years by a person not registered as Investor with
BOI; • Lease of immovable property for residence for a period exceeding 4 years.
The non‐citizen shall first make a written application to the Prime Minister's office to be delivered with a certificate authorising him to acquire the property. Such approval is also required in respect of an acquisition of shares in a Mauritian entity which has amongst its assets any freehold or leasehold property in Mauritius. Under the Non‐Citizen Property Restriction Act, such approval would also be required where a non‐citizen acquires shares in a company which in turn holds shares in a subsidiary whose assets include freehold or leasehold property in Mauritius. However, no certificate is required where a non‐citizen acquires shares in a Mauritian entity that holds any leasehold property if such property is the subject of a lease agreement for industrial or commercial purposes for a term not exceeding 20 years.
The Prime Minister’s approval is not required, when the property is held or acquired in the following instances:
• Acquisition of immovable property for business purposes; • Acquisition of residential property by holders of permanent resident permit; • Acquisition of residential units under Integrated Resort Scheme, Real Estate Scheme or Invest
Hotel Scheme; • Lease of immovable property for more than 20 years for business purposes.
In the above circumstances, non‐citizens must obtain authorisation from the MBOI.
No authorisation is required in case of a non‐citizen who:
• Holds immovable property for commercial purposes under a lease agreement not exceeding 20 years;
• Holds shares in companies which do not own immovable property; • Holds immovable property by inheritance or effect of marriage; • Holds shares in companies listed on the stock exchange; • Invests through a unit trust scheme or any collective investment vehicle.
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All non‐citizens who have acquired a property under the IRS or RES where the value of the residential property is not less than USD 500,000 or its equivalent in any other freely convertible foreign currency in Mauritius are granted a residence permits for themselves and any spouses or dependents. The permits remain valid so long as the non‐citizen still possesses the residence or until the company terminates the residency.
CORRUPTION Mauritius ranks 42nd worldwide, and 3rd in Africa, in Transparency International's Corruption Perceptions Index for 2011 behind Botswana and Cape Verde. However, Corruption is not seen as an obstacle to foreign direct investment.
The principal anti‐corruption legislation in Mauritius is the Financial Intelligence and Anti‐Money Laundering Act 2002 and the Prevention of Corruption Act 2002.
The Mauritian Financial Intelligence Unit (the “FIU”) was established under the Financial Intelligence and Anti‐Money Laundering Act 2002. It is the central Mauritian agency for the request, receipt, analysis and dissemination of financial information regarding suspected proceeds of crime and alleged money laundering offences as well as the financing of any activities or transactions related to terrorism to relevant authorities.
The FIU also plays an integral part in the investigation and detection of financial crimes. It collects, processes, analyses and interprets all information disclosed to and obtained by it in the process of combating money laundering and terrorist financing.
The FIU became a member of the Egmont Group in July 2003 and has since been frequently elected as the regional representative of African FIUs on the Egmont Committee.
In 2002, the government adopted the Prevention of Corruption Act, which led to the setting up of an Independent Commission Against Corruption ("ICAC"). ICAC consists of an anti‐corruption unit, an anti‐money laundering unit, and a corruption prevention and education division. It has the power to investigate any act of corruption and any matter that may involve the laundering of money or suspicious transaction referred to it by the FIU and can confiscate the proceeds of corruption and money laundering.
COMPETITION The Mauritius Competition Act, 2007, regulates competition law in Mauritius, and is aimed at preventing monopolistic pricing and restricting collusion in consumer markets. The Competition Commission ("the Commission") reviews mergers in three instances:
• where all the parties to the merger, supply or acquire goods or services of any description, and will following the merger, together supply or acquire 30% or more of all those goods or services in the market;
• where one of the parties to the merger alone supplies or acquires prior to the merger, 30% or more of goods or services of any description in the market; or
• where the Commission has reasonable grounds to believe that the creation of the merger situation has resulted in, or is likely to result in, a substantial lessening of competition within any market for goods or services.
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Where the merger falls within the above categories, parties should apply to the Commission for guidance. There are no filing fees.
CONSUMER PROTECTION The Consumer Protection Unit (the “CPU”) is a specialised section within the Ministry of Commerce and Consumer Protection of Mauritius which caters for the protection of consumers.
The CPU enforces Mauritius' various consumer protection acts, and aims to provide overall consumer satisfaction and security, through:
• educating consumers of their rights and responsibilities through print media, public discussions etc;
• settling disputes between traders and consumers by mutual agreement or through the court process; and
• amending existing legislation and preparing new legislation where necessary.
LEGAL FORMS OF INCORPORATION IN MAURITIUS Businesses can be conducted in Mauritius in several forms:
• a private limited liability company; • a public limited liability company; • a sole‐proprietorship; • a branch of a foreign company; or • asociété.
The Companies Act, 2001, governs incorporation of companies. The Act incorporates international best practices and promotes accountability, openness, and fairness. The Business Facilitation Act, 2006, simplified the business licensing process for business start‐ups and allows businesses to start operations within three days of incorporation.
The Companies Act 2001 creates several types and categories of companies, such as domestic companies, companies holding a Category 1 Global Business Licence and companies holding a Category 2 Global Business Licence.
These companies may be in the form of:
a) Acompanylimitedbyguarantee; A company limited by guarantee limits the liability of its members limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.
b) Acompanylimitedbyshares; A company limited by shares limits the liability of its members to any amount unpaid on the shares respectively held by the shareholder.
c) Acompanylimitedbysharesandbyguarantee;orA company limited by shares and by guarantee means a company formed on the principle of having the liability of its members
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i. who are shareholders, limited to the amount unpaid, if any, on the shares respectively held by them; and
ii. who have given a guarantee, limited, to the respectively amount they have undertaken to contribute, from time to time, and in the event of it being wound up.
d) AnunlimitedcompanyAn unlimited company imposes no limit on the liability of its shareholders.
Publiccompany/PrivateCompanyA company incorporated under the Companies Act may be a public company or a private company. If it is not specified that the company is a private company, it will be deemed to be a public company.
A private company is one which specifically states in its application for incorporation or its constitution that it is a private company. The private company may restrict the transfer of its shares, which cannot be offered to the public. A private company must have a minimum of 1 and a maximum of 25 shareholders. Where the number of shareholders exceeds 25, it will be deemed to be a public company.
LimitedLifeCompanyA company of any of the types of company referred to in 2.1 above may be registered as a limited life company where its constitution limits its life to a period not exceeding 50 years from the date of its incorporation. However, this period may by resolution alter its constitution extending the duration of the company to a maximum period of 150 years from the date of incorporation of the company.
GlobalBusinessLicences(“GBL”)CompaniesA public or private company set up under the Companies Act 2001 may apply to the Financial Services Commission (“FSC”) for a licence to carry on global business. The FSC issues two types of licences namely Global Business Licences (“GBL”) 1 and 2.
A GBL 1 company is a company registered in Mauritius and considered as resident in Mauritius for tax purposes. A GBL 1 company can conduct business both within and outside Mauritius and deal with a person resident in Mauritius. The central management and control of a GBL 1 company must be vested in Mauritius. A GBL 1 company will also benefit from Double Tax Avoidance (“DTA”) treaties between Mauritius and other states, subject to possession of a Tax Residency Certificate. It also will have to file audited financial statements with the FSC. A GBL1 Company is taxed at a flat rate of 15%, although foreign tax credits will be allowed for taxes suffered at source where this can be evidenced. A system of deemed foreign tax credits of 80% effectively reduces the income tax rate to 3% on the qualifying income of the company. The tax payable in Mauritius can be less than 3%, where the actual foreign taxes are more than 12%.
A GBL 2 company is tax exempt in Mauritius and does not need to have audited financial statements nor have a company secretary. It however, does not have access to the tax treaties network. The FSC provides certain restrictions on the business activities that may be conducted by a GBL 2 company. No application for a GBL 2 company shall be made by a company registered in Mauritius, unless it is a private company and proposes to conduct business activity other than the following:
i. Banking; ii. Financial services, iii. Carrying out business of holding or managing or otherwise dealing with a collective investment
fund or scheme as a professional functionary;
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iv. providing of registered office facilities, nominee services, directorship services, secretarial services or other services for corporations;
v. providing trusteeship services by way of business.
The Companies Act contains specific provisions applicable to both GBL 1 and GBL 2 companies. The Act also contains specific exemptions for each type of company.
ForeigncompanyThe Companies Act enables the registration of a foreign company if it has a place of business or is carrying on business in Mauritius. It also provides for the migration of companies registered under the Companies Act to other jurisdictions.
Before starting operations, businesses must register with the Registrar of Companies. After receiving a certificate of incorporation from the Registrar of Companies, all companies must register their business activities with the MBOI. Registration with the MBOI enables companies to apply for an occupation permit and other facilities offered to investors. For a limited number of regulated activities in such sectors as tourism, sugar, and broadcasting, an application for the appropriate permit or licence must be made to the competent authorities prior to start of operations.
Mauritius ranked 23rd out of 183 countries in the World Bank Group's Ease of Doing Business Report 2012.
INDUSTRY SECTORS
Agriculture Since independence in 1968, Mauritius has moved away from being an agriculture‐based economy. At one stage, sugar production was the backbone of the Mauritian economy; however, the economy has since diversified significantly.
Agriculture now makes up 3.5% of GDP in Mauritius. Sugarcane remains the dominant crop, extending over 90% of the cultivated land surface of the country. 25% of export earnings come from sugar cane. Other crops include tea, tobacco, vegetables, fruits, flowers, cattle and fishing.
Financial and banking services Mauritius has a well‐developed and modern banking system, with 18 banks currently licensed to undertake banking business. The Banking Act, 2004, provides for banking business to be conducted under a single banking licence regime. Accordingly, all banks are free to conduct business in all currencies, including the MUR. There are also several non‐bank financial institutions which are authorized to conduct deposit‐taking business. Financial services account for 23% of GDP.
The Bank of Mauritius, the Central Bank, carries out the supervision and regulation of banks as well as non‐bank financial institutions authorised to accept deposits. The Central Bank has endorsed the Core Principles for Effective Banking Supervision as set out by the Basel Committee on Banking Supervision. The financial system has not been involved in sub‐prime lending or any activity deriving directly or indirectly from that asset class. The sector is well regulated and has proven to be quite solid and highly profitable.
In August 2011, the Stock Exchange of Mauritius ("SEM") had 38 companies listed on the Official Market and 49 companies on the Development and Enterprise Market (which is designed for small and medium enterprises). The SEM is a member of the World Federation of Exchanges, which reports that the SEM
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adheres to industry business standards. In November 2007, the SEM was included in the new Morgan Stanley Capital International Frontier Markets Indices, which is designed to track the performance of a range of equity markets that are now more accessible to global investors. Mauritius was among four countries in Africa to be included in the new indices. The SEM has also been included in the DOW Jones SAFE 100 Index which was launched in March 2009 by the South Asian Federation of Exchanges.
The SEM was opened to foreign investors following the lifting of the foreign exchange controls in 1994. No approval is required for the trading of shares by foreign investors unless investment is for the purpose of legal and management control of a Mauritian company or for the holding of more than 15% in a sugar company.
Energy Mauritius is dependent on imported fossil fuels to meet its energy needs. The Central Electricity Board is a parastatal body wholly owned by the government of Mauritius, reporting to the Ministry of Renewable Energy and Public Utilities. It produces around 40% of the country's total power requirements, the remaining 60% being purchased from independent power producers.
There is a 94% electrification rate, the 5th highest rate in Africa. Electricity is consumed in roughly equal proportions by commercial, industrial and domestic activities.
Manufacturing Manufacturing accounts for 19.4% of GDP in Mauritius. Most goods are manufactured for the export market. The sector primarily incorporates the manufacture of labour‐intensive goods, including textiles and clothing, light engineering goods, watches and clocks, jewellery, optical goods, toys and games, and cut flowers.
Mining There are few mineral resources in Mauritius. Historically, mineral output consists of basalt construction stone, coral sand, lime for coral, and solar‐evaporated sea salt.
Telecommunications Mauritius has a small telecommunications system, with good service. As at 2008, Mauritius has a fixed‐line tele‐density of roughly 30%, and a mobile tele‐density of 80%. There were also 380 000 internet users.
There is a strong legislative framework governing the Mauritian telecommunication sector. The Information Communication Technology Authority regulates the sector.
Tourism Tourism is a big foreign exchange earner for Mauritius. The sector accounts for 8.7% of GDP, and revenues top USD 100 million per annum. Most visitors come from Europe, South Africa and Reunion Island.
INTELLECTUAL PROPERTY Mauritius is a member of the World Intellectual Property Organisation ("WIPO") and party to the Paris and Bern conventions for the protection of industrial property and the Universal Copyright Convention. Intellectual property rights are protected by the Copyrights Act, 1997, and the Patents, Industrial Designs and Trade Marks Act, 2002, which are both in line with international norms and comply with the WTO's Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement.
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Trademark protection is available in Mauritius for both goods and services. A trademark is initially registered for 10 years and may be renewed for successive periods of 10 years. This protection may be cancelled if the trademark protection is not used for a period of three years or more from the date it is granted. On the sale of a business in Mauritius, trademark protection is assignable, but to the extent of goodwill only. Well‐known international trademarks are protected, regardless of whether they are registered in Mauritius.
A patent is granted for 20 years and cannot be renewed.
DISPUTE SETTLEMENT The Mauritian legal system is largely based on English common law and French civil law. The domestic legal system is generally non‐discriminatory and transparent. Members of the judiciary are independent of the legislature and the government. The highest court of appeal is the judicial committee of the Privy Council of England.
Mauritius is a member of the International Court of Justice. The country is also a member of the International Centre for the Settlement of Investment Disputes (ICSID). A Commercial Court was set up in early 2009 to expedite the settlement of commercial disputes.
InternationalArbitrationThe International Arbitration Act came into force in January 2009 and sets out the rules applicable to an international arbitration based on the UNCITRAL Model Law on International Commercial Arbitration. The regime brought about under the International Arbitration Act is distinct from that of domestic arbitration which is primarily governed by the Mauritian Code on Civil Procedure.
The main objective of the International Arbitration Act is to promote Mauritius as an arbitration forum endowed with a comprehensive modern legal framework in international arbitration. This Act gives an important role to the Permanent Court of Arbitration of The Hague and also allows the parties to be represented by foreign law practitioners.
In line with the international consumer protection standards, the International Arbitration Act provides for specific consumer consent to arbitration agreements. The New York Convention 1958 implemented in Mauritian laws by the Convention on Recognition and Enforcement of Foreign Arbitral Awards Act 2001 (proclaimed in 2004) will apply to any award delivered under the Act. Given the role of Mauritius as an offshore regional business hub, the International Arbitration Act also makes specific allowances to global business companies and their shareholders.
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MOZAMBIQUE
Capital City: Maputo
Currency: Metical (MZN)
Official languages: Portuguese
Government: Republic
President: Armando Guebuza
Prime Minister: Alberto Vaquina
Population: 22,948,858 ( 2011 estimate)
GDP (purchasing power parity): US$ 24 billion (2011
estimate)
Time Zone: GMT +2
MOZAMBIQUE FIRM PROFILE
FERNANDA LOPES & ASSOCIATES
Founded in Maputo in 1995, Fernanda Lopes & Associados has a strong presence in the Mozambique.
Mozambique is regarded as one of the fastest growing economies in the world, driven by dramatic expansion in mineral resources, energy, transport and infrastructure.
Founded in Maputo 1995, Fernanda Lopes & Associados‐Avogados is a full service corporate and commercial law firm with a strong presence in the Mozambique market.
The firm regularly advises major international corporations seeking to operate in Mozambique’s vibrant investment climate.
“This firm has a long‐established reputation in the Mozambican market” – Chambers Global 2012
Contact Information
A: R. Frente Liberatacao de Moçambique, 224, Maputo
P: C.P 2955, Moçambique
T: +258 21 49 72 43/49
F: + 258 21 49 69 75
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MOZAMBIQUE COUNTRY PROFILE
POLITICAL OVERVIEW The head of State is the President of Mozambique, who is elected for a five year term by popular vote (and is eligible for a second five year term). Mozambique has universal suffrage at 18 years of age. The President appoints the Prime Minister, Ministers and Deputy Ministers.
Mozambique is a multi‐party democracy. Currently, there are three main political parties and numerous small parties. The low political risk in the country is a positive feature in attracting investors.
ECONOMIC OVERVIEW While services and industry account for approximately 44.4% and 26.6% of Mozambique's Gross Domestic Product ("GDP") respectively, most of the country's workforce is employed in subsistence agriculture, which constitutes approximately 29% of the country's GDP (2010 estimate). Aluminium and electricity sales constitute a large part of the country's exports.
Mozambique is one of Africa's most successful nations in terms of economic growth, despite remaining poor. Its economy has grown an average of 5% per year since recovering from civil war, having benefited from macroeconomic reform, donor support, large foreign investment projects, and by generally building efforts to alleviate poverty. Much of the fiscal budget is geared towards infrastructure and socioeconomic development. Should Mozambique’s economy grow at an average of 6.5% per year, it should be able to manage without donor support by 2030/2035. Fairly little exposure to world economic markets has shielded the country's economy somewhat from the global financial crisis, and inflation has remained fairly subdued.
Much of the country’s GDP growth has occurred due to foreign investment in mineral resources and services, as well as in the agro‐industry, energy and construction sectors. The government greatly encourages investment in the country, aiming mostly towards megaprojects, which are likely to involve the energy sector over the medium‐term.
REGULATORY ENVIRONMENT The 2012 Index of Economic Freedom ranks Mozambique 15th out of 46 economies in sub‐Saharan Africa, and notes significant improvements in trade, monetary and business freedom within the country.
The privatisation programme in Mozambique has been described as relatively transparent as tendering procedures, open to foreign and domestic investors, are open and competitive (the remaining parastatals are utility companies, the privatization of which is controversial).
Investors are faced with numerous requirements for permits, approvals and clearances, all of which are time‐consuming to obtain, especially if investors are not familiar with the Portuguese language. However, the government's Investment Promotion Centre ("CPI") assists domestic and foreign investors in obtaining the necessary permits. Despite burdensome bureaucracy, the process of obtaining visas and work permits has been significantly eased. Delays in banking transactions and currency transfer procedures are also said to be uncommon, other than those to be expected in administrative processing in a developing country.
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The new Commercial Code, which became effective in 2006, has been lauded as a positive step towards overcoming regulatory, administrative and bureaucratic problems in the country. In addition, the 1993 Investment Law regulates both domestic and foreign investment in the country.
In order to create revenue from fines, civil servants sometimes threaten to enforce outdated laws, in order to extract bribes or favours. However, an anti‐corruption unit has been implemented to prosecute the corruptors and corrupted in such situations.
BILATERAL AND MULTILATERAL TREATIES Mozambique has bilateral investment treaties with the following countries: Algeria, Belgium and Luxembourg, China, Cuba, Denmark, Egypt, Finland, France, Germany, India, Indonesia, Italy, Mauritius, Netherlands, Portugal, South Africa, Sweden, Switzerland, United Arab Emirates, United Kingdom, United States of America, Vietnam, Zimbabwe.
Mozambique has double Taxation Treaties with Mauritius, Portugal, South Africa and the United Arab Emirates.
Mozambique is a member of the World Trade Organisation (WTO), Community of Portuguese‐Language Countries, African Caribbean Pacific‐European Union Partnership Agreement (ACPEU), Southern African Development Community (SADC) and the Overseas Price Investment Corporation (OPIC).
Mozambique has also signed Investment Protection Conventions with Algeria, Egypt, Italy, Indonesia, Mauritius, Portugal, South Africa and Zimbabwe.
INVESTMENT PROMOTION
Institutions governing investment promotion The institution governing investment promotion is the government's Investment Promotion Centre ("CPI") which assists domestic and foreign investors in obtaining the necessary permits and licences.
All foreign and domestic investment which requires guarantees and incentives under the Investment Law must be approved by government authorities. Domestic investment up to USD 100,000 is covered by the Provincial Governor; domestic investment exceeding USD 100,000 and foreign investment up to USD 100 million are covered by the Minister of Planning and Development; and any investment project exceeding USD 100 million and those involving large areas of land (5,000 hectares for agricultural investment and 10,000 hectares for livestock and forestry projects) are covered by the Council of Ministers.
Investment incentives Investment proposals submitted to the CPI must describe the intended investment value and activity to enable CPI to assess its viability and impact on the domestic economy. The CPI will determine the terms of the authorisation, including the business form to be adopted, import and export regime, number of expatriate and local employees (bearing in mind the 2009 quota system), training programmes to be adopted, tax incentives to be granted, regime on‐profit remittances, and other relevant conditions.
The minimum investment to qualify for tax and import incentives is Meticais 2.500.000,00 (circa USD 100 000. Incentives include the following:
• Tax incentives vary according to the type of investment and the region of the country but often constitute a reduction of between 50% and 80% in tax. A 50% reduction in corporate tax rates
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applies during the period necessary for recovering the investment (up to 10 years) where there is investment in new or rehabilitated projects. In the Niassa, Cabo Delgado and Tete provinces, the reduction is 80%. Further tax incentives are available upon the termination of the initial tax incentive period.
• Special tax incentives are given to those who invest in or expand operating projects. A 100% write‐off is provided for investments in new equipment in construction of civil installations and agricultural infrastructure for a five year period.
• Customs exemptions exist on the importation of capital equipment and raw material. Pre‐approval from the CPI is required, as well as a minimum investment of Meticais 2.500.000,00 (circa USD 100 000. (Notwithstanding any customs exemptions granted, a 1% handling fee is charged on all goods.)
• A basic investment credit against the entity's tax liability equal to 5% of the relevant investment costs incurred over a five year period in new tangible fixed assets may also be granted. Unused credit may be carried forward for five years. Increased credits of 10% and 15% are offered in certain specified provinces.
• A five year investment deduction limited to 15% of taxable income for investment in cutting‐edge technology equipment, 10% for training Mozambicans in these technologies and 5% for training Mozambicans in other approved areas may also be granted.
• Rapid Development Zones exist, being the Niassa Province, Nacala District, Ilha de Mocambique, Ibo Island and the Zambezi river valley. Here, special fiscal, labour and immigration arrangements are made for companies, certain goods are exempt from import duties, and investments are exempt from real property transfer tax and investment tax credits equal to 20% of the total investment (with a right to carry forward for five years) are granted.
• Incentives for companies in industrial free zones also exist. In August 2009, the Special Economic Zones office, Gazeda, was created by Decree 43/2009. Gazeda, like the CPI, assists investors although Gazeda is focused on the Beluluane Industrial Free Zone in Maputo Province and the Nacala Special Economic Zone in Nampula Province.
• Industrial free zones (export processing zones) afford the benefits of exemption from customs duties and value added tax ("VAT") on imported construction equipment, accessories, spare parts and other goods. The Industrial Free Zone Council is the regulatory authority responsible for determining whether companies fall into the industrial free zone category. The requirements for obtaining the status of an industrial free zone are threefold:
o at least 85% of annual production is to be exported; o jobs for Mozambican nationals must be created; o minimum investment of USD 50 000.
• The Zambezi Valley, for example, will benefit from a special tax and custom regime until 2025.
TAX A resident company is taxed on its worldwide income. A non‐resident company is subject to tax only in respect of its Mozambique‐source income. A company is resident if its head office or place of effective management or control is in Mozambique, or if the business is registered in Mozambique. Only multinationals and companies incorporated under the Investment Law require an annual audit in Mozambique.
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Income tax All income and gains are included in taxable income. Expenses considered indispensible in the generation of income or gains are deductible.
Tax losses may be carried forward for five years.
The standard company or branch tax rate is 32%, although a penalty rate of 35% may be charged on unsubstantiated/undocumented payments. Special tax regimes apply to certain investment projects where incentives are granted.
Withholding tax Dividends are subject to a 20% withholding tax unless they qualify for the participation exemption (see * below). Foreign‐source dividends are taxable at the full company rate.
* No withholding tax is levied on dividends paid to a Mozambique company that has held 25% or more of the shares in an associated company in Mozambique for at least two years.
Interest paid to residents and non‐residents is subject to a 20% withholding tax unless the rate is reduced under a tax treaty. A 0% rate applies to interest paid to a registered Mozambique financial institution.
Royalties paid to residents and non‐residents are subject to a 20% withholding tax unless the rate is reduced under a tax treaty.
Payments made to non‐residents for telecommunications services, international transport services and the assembly and installation of equipment are subject to a 10% withholding tax.
Capital gains tax Capital gains or losses are included and taxed at the company rate. An inflation allowance is available (which has to be determined on a case‐by‐case basis, since the inflation coefficients have not been set by the tax authorities).
Other tax On conveyance of real estate property, a municipality tax is assessed at up to 0.4% for a residence and 0.7% for offices of the value of property in Maputo and Matola.
The employer pays to Social Security 4% of staff emoluments, with no upper limit and withholds and delivers 3% on employees’ wages and economic activity tax is charged on businesses in municipal areas, but the costs vary according to location, type and size of the business, and are not significant.
Transfer pricing and thin capitalisation The arm's length principle applies to deals between related parties. For payments to companies in low tax jurisdictions, the authorities will need to be satisfied that the payment was genuine and reasonable.
The deduction of intercompany interest may be limited where the indebtedness to a non‐resident related party is more than twice the equity.
Stamp and transfer duty Stamp duty at 0.4% applies to share transfers and 0.2% to transfers of buildings. Land transfers (which are always leaseholds) are exempt from stamp duty.
A transfer tax of 2%, normally paid by the transferee, is charged on the transfer of title to a building. The rate is 10% where the transferor is resident in a jurisdiction with a more beneficial tax regime.
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Double Tax Duty with Mauritius Yes.
EXCHANGE CONTROL There are no restrictions on the entry of earnings for services but registration with the Bureau of Exchange is required. Payments for services exceeding a value equivalent of USD 5 000 must be licensed by the Central Bank. Under this amount, commercial banks have been given power by the Central Bank to authorise transaction and payment. As of 2006, with the purpose of minimising the foreign exchange risk on banking loans, financial institutions are obliged to create a provision of 50% for each loan, in foreign currency, granted to non‐exporter entities or individuals.
Non‐residents and travellers can import any amount of foreign currency against declaration. Only foreign currency previously declared may be re‐exported. Under the Investment Law, foreigners are allowed to expatriate their profits and invested capital (at the end of the investment).
IMPORTS AND EXPORTS No restrictions are generally imposed on the export of goods, other than the minimum export requirement for those entities who wish to acquire industrial free zone status. However, registration with customs is needed for statistics, payment of import duties and VAT, and balance of payment purposes.
The import of goods must be preceded by negotiation of foreign currency with commercial banks and must then be registered at the customs office. Foreign exchange retention accounts may be used to purchase imports.
Mozambique is a member of the SADC and in 1999, the SADC Trade Protocol was approved by the country's Council of Ministers creating a free‐trade zone in the SADC region.
ACCOUNTING PRINCIPLES The Mozambique Generally Accepted Accounting Principles ("GAAP") are based on the French system of accounting. In 2007, all commercial banks adopted the International Financial Reporting Standards ("IFRS") and other commercial companies were due to adopt IFRS in 2010, although a number of foreign‐controlled entities have already adopted IFRS. The Corporate Income Tax Code has been amended to incorporate IFRS.
INDUSTRIAL RELATIONS Labour legislation establishes minimum wages ranging between USD 100 and USD 120 per month according to the industry sector. The country has a 48 hour work week (with maximum overtime of 8 hours per week, 96 hours per quarter and 200 hours per year); minimum overtime remuneration level is at 50%; minimum annual leave is between 2 days per month in the first year and 24 days in the second year of work and 20 days from the third year onwards; maternity leave is set at 60 consecutive days with 100% of pay being paid by Social Security.
Employers pay social security tax calculated at 7% of the employee's wages, with up to 3% being deducted from the employee's wages and the remaining 4% paid by the employer. The procedures for acquiring visas and work‐related permits have been eased. The Ministry of Labour approves the
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employment of foreigners, and the immigration department there of issues a DIRE (residency and identification permit) upon approval of each application. Foreign workers must have professional qualifications and may only be hired where there are no Mozambicans with such qualifications.
In 2009, the Ministry of Labour introduced a quota system limiting the number of foreign employees to 10%, 8% or 5%, depending on the number of total employees. Some "megaproject" agreements may be exempted from this quota rule, under Labour Law.
Labour unions established during the 1970's and 1980's remain weak. The total membership across the 14 labour unions in Mozambique is 200 000. Despite the 2007 labour law, the labour laws remain restrictive, and in particular, dismissal of workers is difficult and costly.
Mozambique is a signatory to the International Core Labour Standards.
REAL PROPERTY There is no private ownership of land in Mozambique and all land is owned by the State. The legal system does, however, recognise and protect property rights to movable property. Land‐use concessions are granted by the government for up to 50 years and these are renewable. Overlapping land concessions may also be granted. Land surveys are gradually registering all land‐use concessions but such concessions may not be used as security. The lack of private land ownership acts as a barrier to expanding investment.
Investors are required to obtain endorsement from local affected communities for their projects, in terms of land use and allocation.
CORRUPTION Mozambique anti‐corruption laws comprise the Anti‐corruption Law of 2004, Anti‐Corruption Strategy 2006‐2010, and the National Anti‐Corruption Forum. The Mozambique government is also a signatory to the United Nations Convention against Corruption and the African Union Convention on Preventing and Combating Corruption.
The enforcement of these laws is weak. While Government Accounting Office members and public accountants are obliged to disclose assets, many public agents are still exempt from making any disclosures which brings about a conflict of interest.
COMPETITION Mozambique does not have competition legislation. However, the Mozambican government is in the process of formulating such legislation. The Final Draft of the Competition Policy and Law in Mozambique was finalised in May 2008 ("the Final Draft"). The date upon which the Final Draft will be assented to is not known yet. In terms of the Final Draft, a merger is defined as the legal combination of two or more independent firms, which results in a substantial market share, business volume or annual turnover. The requirements of what may constitute a merger may be determined in general or in relation to a specific production sector and the calculation of the threshold will be determined by the Minister responsible.
The firms engaged in the merger are responsible for the filing of the merger and will have to file a notification with the regulatory authority within seven days of the conclusion of the agreement or the announcement of the public offer for purchase or exchange of shares. Parties who fail to notify a merger will be subject to penalties.
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CONSUMER PROTECTION The Food and Agriculture Organization of the United Nations has a measure of consumer protection in Mozambique. Mozambique also has its own consumer protection legislation in place.
LEGAL FORMS OF INCORPORATION IN MOZAMBIQUE The 2005 Commercial Code governs this area of law. The two main types of limited liability companies are the sociedade anonima and the sociedade por quotas. A foreign company may also conduct business through an affiliate, branch office or agency of the company domiciled overseas.
A sociedade anonima company must have at least three shareholders (who may be Mozambican or foreign individuals or companies). There is no minimum capital but the amount must be suitable for the pursuit of the company's objective and must be expressed in Mozambican currency. All share capital must be subscribed and at least 25% paid up in order for the company to be formed. Liability of shareholders towards company debts does not exist, unless security is expressly provided by the shareholder.
A sociedade por quotas company must have a minimum of two and maximum of thirty members, all of whom are equity partners. If there is just one holder of the entire capital, this company is a unipessoal and this word must be included in its name. There is no minimum capital. Share capital is divided in quotas. The quotas are always nominative, that is, the names of the holders thereof must be stated in the company statutes. Members are liable to the company itself, but not to the company's creditors. The company must retain 20% of its profits for the financial year, which may not be less than one fifth of the registered capital, as a legal reserve.
The table below provides a summary of the procedures and the associated completion time and cost for setting up a Sociedade por Quotas:
Procedure Time to complete Cost to complete
1 Obtain certification of name (certidão de reserva de nome) at the Conservatória do Registo das Entidades Legais (Legal Entities Registrar).
1 day MZN 77
2 Prepare and sign the private contract of incorporation with articles of association attached and notarized signatures.
Register the company incorporated with the Legal Entities Registrar of Maputo (Conservatória do Registo das Entidades Legais); request a commercial registry certificate; publish company statutes in the official gazette (Boletim da República)
To register a company with the Commercial Registrar Office of Maputo, the following costs apply:
A nominal fixed fee is charged for company matriculation.
The registration fees vary according to share capital:
1 day to 1 week
MZN 1475
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amounts up to MZN 5 million are taxable at a 2% rate, and amounts over MZN 5 million are taxable at a 1% rate.
A variable fee is payable for administrative costs up to a maximum of MZN 1,000.
This registration is final because the Commercial Registrar coordinates the publication of the company statutes in the Official Gazette. The fixed fee for online publication is MZN 475 per year for a 25‐line page. Publication can take 3 days to 1 week.
3 Register for taxes and obtain NUIT from Repartição de Finanças
1 day No charge
4 Apply for a simplified operational license from the ConselhoMunicipal.
This license has to be renewed every five years.
The activities that can benefit from this Simplified Licensing regime includes some fields in agriculture, general commercial activities, service provision, construction, sport, industry, transport and communication, tourism.
1 day No charge
5 Declare the beginning of activity at the Tax Department (Repartição de Finanças)
1 day No charge
6 Declare the beginning of activity and register the company at the INEFP (Instituto Nacional mprego e Formação Profissional at Ministry of Labour).
1 day MZN 50
7 Register workers with the social security system. The employer must register the company within 15 days of the start of business activity and register employees within 30 days of the start of their employment agreements.
1 day (simultaneous with previous procedure)
No charge
8 Subscribe for workmen’s compensation insurance coverage
1 day (simultaneous with previous procedure)
No charge
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INDUSTRY SECTORS
Agriculture Mozambique has 35 million hectares of arable land of which 90% is underutilised. Only 10% of land is currently used for export‐focused operations. Major crops are maize, cotton, cashew nuts, sugarcane, tea, rice, corn and fruits, and beef and poultry are also among the major agricultural products. Cotton provides income to cash‐croppers, as the fourth largest export.
Fisheries are a major foreign exchange earner and employ approximately 100 000 people, mostly artisanal fishermen. Prawns are the second largest export in the country using industrial and semi‐industrial methods, with the European Union buying 80% of the produce. Commercial fishing requires state licensing, including the requirement for cold‐storage equipment on board a vessel. Processing mostly occurs in the main coastal cities. The fishing industry is privately operated for the most part.
Financial and banking services Mozambique’s banking sector is relatively small and underdeveloped. Yet the sector’s stability in the face of the global economic crisis (having no mortgage‐related debt, having fairly good liquidity, being well‐capitalised and under good central bank supervision) is supportive of investment activity.
Problematic aspects include difficulties in obtaining credit and low financial intermediation due to the low level of competition within the sector.
Only 10% of Mozambicans currently have access to the banking system, partly due to the fact that 70% of the population lives in rural areas. Of the 14 banks, four dominate the market. Almost all of the large institutions are foreign‐owned (either by Portuguese or other African banks). Of the microfinance institutions, four control 60% of the market.
There are only two shares listed on the Maputo Stock exchange at the moment. The capital base requirement for listing is USD 1.5 million. The central bank uses the local money market to issue treasury bills, most of which are quickly bought by banks.
Energy Domestic electricity consumption is somewhat limited although the government has obtained financing to connect 22 of the 34 district capitals not currently on the national grid. Over the past five years, 42 districts have been connected to the national grid. The Electicidade de Moçambique ("EDM") has a monopoly on the industry and is state‐owned.
The energy goals of the country are attracting foreign direct investment over the medium‐ to long‐term. There is a plan to build an USD 8 billion refinery south of Maputo for production in 2014, to replace OILMOZ's refinery which closed 24 years ago. There have also been invitations to refurbish the Chicamba & Mavuzi hydroelectric projects. Two new gas fields have been discovered and the Deputy National Director of Mineral Resources has indicated government approval of an increased gas production plan. The two natural gas fields discovered in late 2008 in the southern Inhambane province could supply domestic and regional markets if determined to be commercially viable.
Hydroelectricity is the third largest Mozambican export – indeed, Mozambique is one of the few African countries which consistently generates electricity for export purposes (though this is done in the face of insufficiently catered for local requirements). It currently exports 60% of its electricity to South Africa and 35% to Zimbabwe, using the 2075 MW Cahora Bassa plant.
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Manufacturing Mozambique's industrial activities constitute approximately a quarter of GDP, employing 6% of the labour force, with the primary activities being aluminium production, agricultural processing and construction material production.
Aluminium is the primary export of Mozambique, with the BHP Billiton‐run Mozal aluminium smelter near Maputo constituting approximately half of the country's manufacturing output alone. Mozambique is one of the world's leading exporters of lightweight metal.
Mining The mining sector of Mozambique is small, constituting only 2% of GDP, due to limited local mineral extraction.
Mozambique's National Directorate of Mining ("NDM") lists the following among its mineral wealth: gold, marble, heavy metals, coastal sands, pegmatite, iron ores, diatomite, graphite, precious and semi‐precious stones, granite, bauxite, phosphates and asbestos. Mozambique has the potential to become a world player in producing limonite (a pigment used in producing paint, paper and plastics). A limonite mine opened in 2007 produces 6% of the world's limonite resources.
Mozambique's coal reserves are estimated at 10 billion tonnes. Brazil's Vale began operations for metallurgical and thermal coal production at the Moatize mine in 2009. Australia's Riverdale Mining was granted permission for the Benga coal project in January 2010. There is a Dutch and Danish project to build a railway line in Moatize and Nacala by 2015.
The Mining Law states that the government owns all mineral resources. The government allows autonomous mining extraction operations by private companies with mineral exploitation rights determined by the scale of proposed operations. A local company needs to be incorporated into an operation. Concessions last a maximum of 25 years though most are shorter. Production tax of 3% ‐ 12% is levied on mine output and concession holders pay surface tax according to land area. The following licences may be granted: Reconnaissance Licence, Exploration Licence, Mining Concession, Mining Certificate (small‐scale exploration) and Mining pass (small‐scale mining).
Retail Few formal Mozambican retail brands exist. However, the retail sector is set to expand in the near future, with Mozambican and South African brands.
Companies involved in the retail sector are required to hold a trading licence as issued by the Ministry of Trade in order to carry on business in wholesale and retail commerce.
Telecommunications Fixed line communication is monopolised by the publically‐owned Telecomunicações de Moçambique ("TDM"). Physical infrastructure is lacking and bandwidth expensive, thus fixed line voice and data services are currently at a low level. Vodacom Mozambique and mCel (a TDM subsidiary) control the mobile communications market.
The government, though hesitant to privatise TDM, is intent on introducing competition into the fixed line market. Licensing remains subject to Instituto Nacional des Comunicacoes (INCM) approval.
With new undersea cables and an expanding economy the telecommunications sector is set to rapidly expand. It has been predicted that mobile phone services could quadruple by 2017.
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Tourism The Mozambican coast is a leading tourist destination in southern Africa. Tourist receipts and tourist investment produce much foreign exchange income. The Tourism Minister believes the sector will increase its contribution to GDP from 2.5% to 4% over the next five years.
INTELLECTUAL PROPERTY There is trademark protection for both goods and services in Mozambique and this protection persists for a period of 10 years. However, it is vulnerable to cancellation if there is a continuous period of non‐use of five years. On the sale of a business in Mozambique, trademark protection is assignable.
DISPUTE SETTLEMENT An arbitration law was enforced in Mozambique in 1999, yet due to the bureaucratic judicial system, most disputes are either settled privately or not at all. The Centre for Commercial Arbitration, Conciliation and Mediation ("CACM") is supported by USAID and offers commercial arbitration. Mozambique acceded in 1998 to the New York Convention on the Recognition of Foreign Arbitral Awards.
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RWANDA
Capital City: Kigali
Currency: Rwanda Franc (RWF)
Official languages: Kinyarwanda, English and French
Government: Republic, presidential, multiparty
democracy
President: Paul Kagame
Prime Minister: Dr. Pierre Damien Habumuremyi
Population: 11,370,425 ( 2011 estimate)
GDP: US$ 7.103 billion (2012 estimate World Bank)
Time Zone: GMT +2
RWANDA FIRM PROFILE
K‐SOLUTIONS & PARTNERS Rwanda’s economy is rapidly evolving and the country is consistently praised for the pace of its business climate reform and improvements in economic freedom.
K‐Solutions & Partners is a prominent law firm in Rwanda, exceptionally well positioned to offer clients practical insights on the legal issues arising in Rwanda’s dynamic economic environment. The firm has a reputation for delivering in‐depth knowledge of both local and international business practice.
With extensive commercial and financial legal expertise, K‐Solutions & Partners represents clients in major business matters nationally, regionally and internationally. The firm regularly advises financial institutions, multinationals, telecommunications companies, airlines, government bodies, embassies, NGOs, international manufacturers and retailers.
K‐Solutions & Partners is committed to the highest professional standards and is consistently ranked as a leading law firm in Rwanda by Chambers Global.
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Contact Information
A: Rue Masaka 1
Rugunga - Kiyovu
P: P.O. Box 4062 Kigali, Rwanda
T: (250) 255-112-628 / (250) 788-303-441
(250) 788-303-766
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RWANDA COUNTRY PROFILE
POLITICAL OVERVIEW Rwanda’s Head of State is the President, who is elected directly by the people for a seven‐year term renewable once. The President is also the Head of Government and the Commander in Chief of the Rwandan Defense Force (RDF). Fairly extensive powers are vested in the President, including the conclusion of international treaties, the declaration of a state of emergency and the dissolution of the Chamber of Deputies.
Legislative power is held by the National Assembly which is bicameral i.e. the lower house or Chamber of Deputies and the Senate. The next legislative elections (for the lower house i.e. chamber of deputies) are due in September 2013 and the next presidential elections are due in August 2017.
ECONOMIC OVERVIEW Rwanda has made substantial progress in stabilizing and recovering its economy to levels that existed before the 1994 genocide. Gross Domestic Product (GDP) has displayed average annual growth rates of 7.6% in 2012 and expected growth rates of 6.9% in 2013. Much of this growth has been based on strong tea and coffee exports and an increasingly prosperous tourist sector. Investment in real estate and infrastructure also continues to grow. The mining sector’s significance to the economy is well cemented; it employs over 32,000 people whereas last year, mineral exports fetched over $150 million, $11million more than tea and coffee combined.
Agriculture comes second in the Rwandan economy, employing 90% of the workforce and contributing 35.9% of the GDP. Manufacturing is very limited and focused on food‐processing, but the sector offers many opportunities to small and medium‐sized investors. Services also make a significant contribution to GDP (43%) and the sector is dominated by telecommunications, transport and retail.
The Government of Rwanda, through its ‘Vision 2020’ and the Economic Development and Poverty Reduction Strategy (EDPRS) and the National Investment Strategy, recognizes that the commercial private sector will have to lead the process of economic development and wealth creation. In order to achieve the Vision 2020 goals, the Government estimates that the economy should grow by 8% per year. This would require domestic investment to increase to 30% of GDP by 2020.
Privatization is one of the key elements in the government's economic reform and reconstruction efforts, and draws on the experiences of a number of African countries which indicate that the private sector must be the engine of growth.
The broad objectives of privatization are
i. relieving the financial and administrative burden on the government, ii. improving the efficiency and productivity of the enterprises privatized and thereby augmenting
the sources of government revenue, iii. reducing the size of the public sector in the economy, and iv. Broadening the ownership base of Rwandan enterprises.
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REGULATORY ENVIRONMENT In recognition of the private sector as a key engine of growth development, the Government of Rwanda has implemented impressive regulatory reforms since 2008. These include a new intellectual property law, a law on arbitration and conciliation in commercial matters (2008), a law establishing the Kigali International Arbitration Centre (2010) and a new company law adopted in 2009. Consequently, bureaucratic hurdles have been reduced creating an investor‐friendly environment.
As a result of these reforms, the World Bank Group ranked Rwanda amongst the world’s top business climate reformers in 2011 and 2012. It is currently ranked 45th out of 183 economies in terms of the ease of doing business, and the fourth top in sub‐Saharan Africa. Similarly, Rwanda has made notable annual improvements in the 2012 Economic Freedom Index: it is currently ranked3rd out of 46 countries in sub‐Saharan Africa and achieved the fifth largest improvement score in the 2012 index. Rwanda scored particularly highly in business freedom, fiscal freedom and labour freedom.
Foreign investment is invited to all sectors with no restrictions on equity or ownership.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Rwanda is a member of the East African Community (EAC), the Common market for Eastern and Southern Africa (COMESA), the African Union (AU), and the World Trade Organisation (WTO).
Rwanda has bilateral investment treaties with Belgium, Germany and the United States. Tax treaties (for avoidance of double taxation) have been ratified with Mauritius and Belgium.
INVESTMENT PROMOTION
Institutions governing investment promotion As a result of the investment law of 2006, the Rwandan Development Board (RDB) was established in 2008 to facilitate and fast track new investment projects. RDB consolidates several government agencies previously involved in promoting investment including the Rwanda Investment and Export Promotions Agency (RIEPA), the Rwanda Commercial Registration Service Agency (RCRSA), the Human Resource and Institutional Capacity Development Agency (HIDA), the Rwanda Information and Technology Agency (RITA) and the Rwanda Office of Tourism and National Parks (ORTPN).
RDB acts as a ‘one stop shop’ for investors and provides assistance in obtaining all required approvals, certificates, land, work permits, and tax incentives. Business plans of potential investors are evaluated by the RDB in order to better allocate investment incentives and record incoming investment.
RDB has chosen energy, agriculture, tourism and ICT as priority sectors in which to target investment.
Investment incentives Investors registered with the RDB can obtain certificates that make them eligible for certain benefits, including reductions in corporate income tax payable, VAT exemptions on all imported raw materials and imported vehicles for investors and their foreign employees, and duty exemption on plant, machinery and equipment.
The Rwandan Government also offers an investment allowance of 40% of the amount invested in new or used assets, provided the amount invested is at least RWF 30 million and business assets are held for at least 3 tax periods.
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Investors who demonstrate capacity to add value and invest in priority sectors enjoy greater incentives. The government also offers grants and special access to credit to investors promoting rural areas.
TAX
Income tax Residents are taxed on worldwide income whereas and non‐resident corporations are subject to tax on their Rwandan source income. A corporation is generally considered to be resident if it is established according to Rwandan law or if its headquarters are in Rwanda. Branches of foreign companies and permanent establishments are also considered resident. Foreign‐source income derived by residents is subject to corporation tax in the same way as Rwanda‐source income.
Corporate tax is imposed on a company's total income after deduction of normal business expenses. The corporate tax rate is 30%, with some discounts for registered investors based on the number of employees and the amount of income derived from the export of goods and services. Losses may be carried forward for 5 tax periods. The carry back of losses is not permitted.
Withholding tax Dividends received between Rwandan resident companies are not subject to withholding tax and are exempt from tax in the hands of the recipient. Dividends and the distribution of profits to a non‐resident company are subject to a 15% withholding tax unless the rate is reduced under a tax treaty.
Interest paid to a non‐resident is generally subject to a 15% withholding tax. The withholding tax on royalties is 15%. These rates may be reduced under a tax treaty.
Capital gains tax In general, capital gains are taxed as ordinary income at the standard rate of corporate tax. However, capital gains derived from the sale or cession of commercial immovable property is separately taxed at a rate of 30% while capital gains on secondary market transactions on listed securities are exempt.
Other tax Value Added Tax (VAT) is imposed on the sale of goods and the provision of services. The standard VAT rate is 18%, with exemptions and zero rating available in certain cases.
The registration threshold for VAT purposes an annual turnover of RWF 20 million. Voluntary registration is available for taxpayers whose turnover does not meet this threshold.
Transfer pricing and thin capitalisation When independent parties deal with one another, the terms of trade are determined by market forces and may be presumed to be at arm’s length. However, for related party transactions, determination of the arm’s length price requires a comparison of the conditions in a “controlled transaction” against the conditions in an unrelated party or controlled transaction.
Interest on a loan from a related party that exceeds 4 times the amount of equity may not be deducted from taxable income unless the taxpayer is an individual. This provision does not apply to commercial banks or insurance companies.
Stamp and transfer duty No stamp duty or transfer duty regulations are in place.
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Double tax treaty with Mauritius Yes
EXCHANGE CONTROL There are no exchange control restrictions in Rwanda but some restrictions are imposed on the import and export of capital. There is no limit on the inflow of funds, but the central bank requires justification for all transfer over USD 20,000 to monitor potential money laundering. There are also some restrictions on the outflow of export earnings. For example, restrictions apply to the transfer of earnings by expatriation requirements for exporters with transactions exceeding USD 10,000. Investors can remit payments only through authorized commercial banks.
Both residents and non‐residents can hold bank accounts in any currency. The Banque Nationale du Rwanda (National Bank of Rwanda) governs matters relating to the management of foreign exchange.
IMPORTS AND EXPORTS Coffee, tea and minerals make up Rwanda’s major exports, whilst imports comprise mostly of machinery and equipment, steel, petroleum products, cement and construction materials, and foodstuffs.
The Rwanda Bureau of Standards is the only body with powers to define and possess national standards. Imports are subject to taxes but some imports are exempted.
Regional integration strategies also affect Rwanda’s trade regime. The East African Community (EAC) customs union facilitates the movement of goods produced in the region. COMESA countries have a free trade agreement that permits goods originating in member countries and that comply with certain rules of origin to enter other member markets duty free.
ACCOUNTING PRINCIPLES After the enactment of the new Companies Act in April 2009, companies were given two years from the date of enactment to comply with the provisions of the law relating to companies. A National Accounting Practice, the Institute of certified Public Accountant of Rwanda was establish under law n°06/05/2008 and the International Financing Reporting Standards (IFRS) are generally applied by subsidiaries of international companies, banks and financial institutions.
For a company that has one or more subsidiaries, the Companies Act requires that a consolidated balance is prepared within six months of the end of the financial year.
INDUSTRIAL RELATIONS Rwanda makes effort to adhere to the International Labour Organisation (ILO) convention protecting worker rights. However, enforcement continues to be an issue.
Labour in Rwanda is readily available. However, highly skilled professionals are limited owing to the country’s recent tragic past. Huge investments have been made in the education sector in order to tackle this problem.
Trade unions in Rwanda are not yet contributing fully to the economy although collective bargaining agreements are in force in a few companies.
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Expatriates require permits in order to work in Rwanda. Immigration authorities generally grant work permits provided that local citizens do not possess the necessary skills and expertise. Yearly work permits can be obtained for RWF 100,000.
REAL PROPERTY Although the land is owned by the State, both foreign and local investors can acquire land through lease‐hold agreements that extend from 20 to 99 years.
CORRUPTION The Government of Rwanda maintains a high‐profile anti‐corruption message. Institutions including the Ombudsman’s office, the Anti‐Corruption Unit of RRA, and the Auditor General’s Office identify corruption cases. Rwanda ranks 49th out of 180 countries in Transparency International’s Corruption Perception Index for 2010, an improvement for the third year in a row.
Rwanda has signed and ratified the UN Anticorruption Convention. It is a signatory of the OECD Convention on Bribery. It is also a signatory of the African Union Anticorruption Convention. Giving and accepting a bribe is a criminal act under law, and penalties depend upon the details of each specific case. The government is implementing these laws with increasing effectiveness and enforcement is the same for both foreign and local investors.
CONSUMER PROTECTION The Law n°36/2012 OF 21/09/2012 relating to completion and consumer protection was passed and published and a Competition and Consumer Protection Policy has been adopted by the Rwandan Government. This policy guarantees various consumers’ rights such as the right to a guarantee, the right to be shown the prices of all products and services, the right to a valid invoice, the right to customer service and care, the right to safety and to protection against insanitary products on the market.
The Ministry of Commerce, the Rwanda Utility Regulatory Agency and the Rwanda Bureau of Standards are the main Government bodies that are responsible for the enforcement of the policy.
LEGAL FORMS OF INCORPORATION IN RWANDA The Rwandan Company Act provides for the following types of companies: public company and private company. With regards to the scope of liability, a company may have its liability limited to its shares, guarantee, to both shares and guarantee or an unlimited liability. However, it is prohibited for a public company to be limited only by guarantee or an unlimited company. A company may be a sole proprietorship or a branch/subsidiary of a foreign corporation.
The law relating to companies, the Companies Act of 2009, governs the incorporation, management and reporting of these business entities.
The World Bank Group ranks Rwanda 8th in the world in terms of the ease of starting a business. The process involves two procedures and takes approximately three days to complete. The table below provides a summary of the procedures and the associated completion time and cost for setting up a private limited company:
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Procedure Time to
complete
Cost to
complete
1 Check company name, submit registration application and pay registration fee
1 day RWF 15 000
2 Pick up registration certificate (when the documentation is ready, the Registrar General signs the registration certificate).
2 days No charge
INDUSTRY SECTORS
Agriculture Rwanda's economy is predominantly agricultural. Agriculture contributes over 40% of the country's GDP and the agricultural population currently stands at a little less than 80% of the total population. The agricultural sector meets 90% of the national food needs and generates more than 70% of the country’s export revenues. The major exports of Rwanda are coffee and tea.
The country’s Economic Development and Poverty Reduction Strategy (EDPRS) defines a large number of priority programs in the agriculture sector including the intensification of sustainable production systems in crop cultivation and animal husbandry; building the technical and organizational capacity of farmers; promoting commodity chains and agribusiness, and strengthening the institutional framework of the sector at central and local level.
Financial and banking services Rwanda’s financial system is small but growing. Less than 20% of the country’s adult population has a bank account or access to financial services.
The banking sub‐sector consists of the Central Bank (Banque Nationale du Rwanda), ten commercial banks and the Rwanda Development Bank. The government is gradually reducing its involvement in the banking sector. Limited access to credit continues to be a hurdle for investors. Interest rates are relatively high and loans are usually only short‐term. In an effort to expand financial services coverage for more of the population, the Private Credit Bureau has been operating since 2009.
Over fifty micro‐finance institutions operate in Rwanda. Specific rules apply to micro‐financing institutions. They need to receive the Central Bank's approval before starting operations. Foreign nationals who propose to manage a micro‐credit institution are immediately operational.
Capital markets are at an early stage of development, with a small stock exchange. The Rwanda Stock Exchange opened on 31st January 2011.
Energy Rwanda faces substantial problems with electricity. Responsibility for the generation and distribution of electricity has recently been handed over to the Energy, Water and Sanitation Authority. Only 13% of Rwanda’s population is currently connected to the electricity network, mainly in the capital Kigali and a number of towns. Rwanda imports about 13% of its electricity from neighbouring countries, which further raises the cost. Rwanda’s target is to increase domestic production by 25% from 2011‐2012.
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In Rwanda, over 80% of energy consumed is derived from wood burnt in its primary state or processed into charcoal. This form of energy is used mainly by households. However, Rwanda has a deficit in wood, both for energy purposes and for other economic activities. The Government aims to make better use of existing resources and is actively promoting the following alternatives to the traditional sources of energy production: establishment of micro‐power plants, use of solar and wind energy, geothermal energy, use of peat or methane gas from Lake Kivu where there are estimates reserves of 55 billion m³.
Rwanda has neither oil resources nor refineries. All petroleum products are imported. The annual consumption of refined petroleum products is estimated at 100 000 tons, which is imported mainly from Kenya. Around 15 oil companies operate in Rwanda. There are five main storage facilities in Gatsatsa and Butare with a total capacity of almost 30 000 m³; smaller facilities are located in Kigali and Gisenyi.
Manufacturing Rwanda’s key industries include agricultural products, small‐scale beverages, soap, furniture, shoes, plastic goods, and textiles.
There are opportunities across the board in manufacturing in Rwanda, first for the domestic market, which would be of interest especially to small and medium enterprises, and then for the regional market. The high cost of imports in this landlocked country offers opportunities for import‐substitution activities that enjoy a certain natural protection.
Industry contributes 14% of Rwanda’s GDP. The manufacturing sector is mostly concentrated in Kigali and focused on food processing.
Mining The key minerals that are mined and traded are Cassiterite, Colombo‐tantalite (coltan), wolfram and small reserves of gold. The mining sector is governed by the Law on Mining and Quarry Exploitation, 2008.
Investment in the mining sector has recently increased and export earnings reached USD150 million in 2012. The main players in the industry are private investors and small scale artisanal miners. Through the government’s decision to privatize mineral concessions, a number of large players have entered the market in both exploration and exploitation. These large players are mostly international companies, some of which have joint ventures with local investors. In order to obtain a 30‐year permit to develop industrial mining, investors must determine potential mineral deposits in a large scale concession.
Retail The main players in the retail sector are local small scale private investors. However, some large regional investors, mainly from EAC countries (Nakumatt, Deacons, etc), have recently entered the retail market.
Telecommunications Rwandan's telecommunication sector is dominated by MTN Rwandacell (MTN) and Tigo Rwanda. MTN Rwandacell Limited acquired the first mobile telecommunication licence in 1998. A third telecommunication licence was recently granted to Bharti Airtel.
The involvement of foreign investors such as MTN and Tigo Rwanda in the ICT sector has been instrumental in the Government's strategy to develop a knowledge economy and has facilitated business in general. Government investment in setting up a fibre‐optic network will help interconnect Rwanda's regions, promote e‐governance and provide fast and efficient ICT infrastructure throughout the country. The Government of Rwanda has made ICT a high priority sector and is in the process of developing a Techno‐Park near Kigali to facilitate investment in this area.
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Telecommunications are regulated by Law 44 of 2001, which also created the Rwanda Utilities Regulatory Agency (RURA).
Tourism With regards to tourism, the Government of Rwanda has developed a strategy that focuses on high‐end eco‐tourism and invites private investment into developing the sector. As part of the Rwanda National Innovation and Competitiveness Program, a group of 40 Private Sector, Public Sector and NGO leaders forming Rwanda's Tourism Working Group have focused on creating high‐value and low environmental impact experiences for eco‐travellers, explorers and business travellers.
INTELLECTUAL PROPERTY Rwanda is a member of the World Intellectual Property Organisation “WIPO” and party to the Paris, Brussels and Berne conventions and the Hague agreement. , Rwanda is also a member of African Regional Intellectual Property Organization (ARIPO).
A law on the protection of intellectual property was enacted in 2009. This law protects patents, utility models, industrial designs or models, layout‐designs of integrated circuits, marks, geographical indications, copyrights and related rights.
The Ministry of Commerce (MINICOM), Rwanda Revenue Authority (RRA), and Rwanda Bureau of Standards (RBS) work together to address issues involving counterfeit products on the Rwandan market. Despite adherence to key international agreements on intellectual property rights, the sale of counterfeit goods and violations of pharmaceutical patents continue.
A dedicated department within RDB (the Office of the Registrar General –the ORG‐) has been created to improve IPR by registering all commercial entities and facilitating business identification and branding.
DISPUTE SETTLEMENT Most disputes in Rwanda are resolved through litigation in court. The government established an arbitration centre in 1998. However, arbitration and alternative methods of dispute resolution remain underdeveloped, despite the fact that the code of civil, commercial, labour and administrative procedures provide for arbitration. Rwanda is a member of the International Centre for the settlement of Investment Disputes (ICSID) and African Trade Insurance Agency (ATI). Rwanda also signed and ratified the Multilateral Investment Guarantee Agency (MIGA) convention. Very recently, an international arbitration centre has been established (Kigali International Arbitration Centre). It is now up and running. This centre is the forum for settlement of most business related disputes on both national and regional level.
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SUDAN
Capital City: Khartoum
Currency: Sudanese Pound (SDG)
Official languages: Arabic and English
Government: Presidential democratic republic
President: Omar al‐Bashir
Population: 30 million ( 2012 estimate)
GDP (purchasing power parity ): US$ 43 billion (2012 estimate)
Time Zone: UTC +3 hours
SUDAN FIRM PROFILE
OMER ALI LAW FIRM Omer Ali Law Firm provides high quality legal services to a rapidly expanding client base of local, international and multinational entities in Sudan. The firm advises client operating in a range of sectors including oil and gas, aviation, mining, manufacturing, agriculture, telecommunications and financial services.
Based in Khartoum, Omer Ali Law Firm has advised clients on Sudan’s business environment since 2005. The firm offers a wide range of legal services including corporate and commercial, banking and finance, insurance, employment, intellectual property, mergers and acquisitions, shipping, energy and natural resources, arbitration, international trade, real estate and construction.
Dr. Omer Abdelrahman has practised law in prominent law firms inside and outside Sudan, acted as a legal advisor at the helm of the executive branch of government, and acted as in‐house counsel for a multinational conglomerate operating across four continents.
Contact Information
A: 3rd Floor,
Plot 2/1 Block 9/E Khartoum East
Tower of Arab Authority for Agricultural
Investment & Development
P: P.O. Box 11462, Khartoum, Sudan
T: (+249) 15515 5554
M: (+249) 91230 7757
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SUDAN COUNTRY PROFILE
POLITICAL OVERVIEW Sudan is a presidential democratic republic based upon a multiparty state. The current Head of State is President Omar al‐Bashir. Al‐Bashir took office following a 1989 military coup and was subsequently sworn in as president in October 1993. He was most recently re‐elected in April 2010 and the next elections are due in 2015.
The legislative branch of Sudan is comprised of a 450‐member National Assembly and a 50‐member Council of States. Members of both houses serve six‐year terms.
The Sudanese government is currently dominated by the National Congress Party (NCP). Until the secession of South Sudan in July 2011, the government was mandated by the North/South Comprehensive Peace Agreement (CPA) and a percentage of leadership posts were allocated to the South Sudan based Sudan People’s Liberation Movement (SPLM). This coalition has since been dissolved.
The Government of Sudan is currently in the process of drafting a new constitution to replace the Interim National Constitution ratified in July 2005.
ECONOMIC OVERVIEW Sudan’s economy has suffered from decades of prolonged civil war and was fundamentally altered after the secession of South Sudan in July 2011. South Sudan accounted for over 75 per cent of the former Sudan’s total oil production, which in turn represented over 35 per cent of the Government of Sudan’s revenues.
Following South Sudan’s secession and the dramatic fall in oil earnings, Sudan has struggled to maintain economic stability. The Government has announced plans to generate new revenue streams by expanding existing oil and gas production, mining operations, such as gold mining, and agricultural production. Austerity measures have also been introduced to counter the effect of the loss of revenue.
Agriculture currently employs 80 per cent of the Sudanese workforce and accounts for 32 per cent of GDP. Industry accounts for 25 per cent of GDP, and the remaining 43 per cent is attributed to the service sector. Sudan's real GDP is expected to grow by 2.8 per cent in 2013, with the rate improving to 5.3 per cent in 2017.
REGULATORY ENVIRONMENT In order to achieve economic diversification, the Government of Sudan has stressed the need for foreign direct investment. However, Sudan’s business environment continues to present significant challenges to those seeking to invest in the country. The World Bank Doing Business Report 2013 ranks Sudan 143 rd out of 183 countries. Transparency International ranks Sudan in the bottom five countries in the world in its 2013 Corruption Perception Index. The situation is further complicated by comprehensive sanctions placed on Sudan by the US Government.
However, foreign direct investment is evident in the country, particularly in the natural resources and agricultural sectors. China, Malaysia, and India have invested in the oil sector, and countries including the
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Gulf States, Turkey, Indonesia and South Africa have made steps to expand their commercial engagement with Sudan.
Efforts are being made to foster a more favourable investment climate. The High Council in Investment has been entrusted with the task of establishing mechanisms for coordination among investment related governmental agencies for the sake of simplifying investment procedures and removal of barriers.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Sudan is a member of the Common Market for Eastern and Southern Africa (COMESA), the Arab League and the Intergovernmental Authority on Development (IGAD). Sudan is also an observer of the World Trade Organisation (WTO).
Sudan has bilateral investment agreements with Germany, Netherlands, Switzerland, Egypt, France, Romania, China, Indonesia, Malaysia, Qatar, Iran, Morocco, Oman, Turkey, Yemen, Bahrain, Ethiopia, Jordan, Syrian Arab Republic, United Arab Emirates, Switzerland, Egypt, Libya, Tunisia, Algeria, Kuwait, United Arab Emirates, Lebanon, Chad, Djibouti, India, Vietnam, Bulgaria and Italy. Sudan has bilateral taxation treaties with Egypt, United Kingdom, Malaysia, South Africa, Turkey and Syria.
INVESTMENT PROMOTION
Institutions governing investment promotion In December 2011 the Government of Sudan replaced the Ministry of Investment with the High Council on Investment. The High Council on Investment has been mandated to create an increasingly attractive investment climate in the country, by facilitating investment procedures, removing barriers and revising investment legislation. The Council’s mandate includes, inter alia, approval of the general policy of the Government on investment, follow up of implementation of such policies at federal and state levels, and grant of additional incentives for investments in less developed areas.
Investment incentives The High Council of Investment grants incentives to investors operating in specific sectors. These sectors are divided into three groups:
1. Infrastructure: including roads, ports, electricity, dams, communications, energy, transport, contracting business, education, health and tourist and information technology services and water projects;
2. Natural resource extraction and exploitation; and 3. Agriculture and industrial production.
Under the Free Zones and Markets Act 2009, free zones are established pursuant to a resolution of the Council of Ministers based on the recommendation of the National Council for Free Zones and Markets. Currently there are two free zones in Sudan. The first is located at Suakin on the Red Sea near Port Sudan and the second at Aljaily near Khartoum. Investors operating in these free zones receive the following benefits:
• Exemption from tax on profits for 15 years, renewable for an extra period; • Salaries of expatriates are exempt from personal income tax; • Products imported or exported abroad are exempt from all customs fees and taxes except
service fees;
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• Real estate is exempt from all taxes and fees; • Invested capital and profits are transferable from Sudan to abroad through any bank licensed to
operate in the free zones.
TAX
Income tax A company is deemed to be tax resident in Sudan if it is incorporated in Sudan under the Companies Act 1925 or if the management and control of its affairs are exercised in Sudan in the relevant tax year. Resident companies are liable to tax on their worldwide income, whilst non‐resident companies pay tax on profits derived from a Sudanese source only.
Corporate tax rates in Sudan are dependent on the specific activity of each entity. Corporate tax is charged at the following rates:
• Agriculture 0% • Manufacturing and real estate 10% • Commercial and services activities 15% • Oil & Gas services 35% • Oil & Gas distribution 15% • Telecommunications 30% • Banks 30% • Mining 15% • Cigarettes and tobacco companies 30% • Capital gains from sale of shares and bonds and capital assets 2% • Withholding tax Royalties 15% • Management fee 15% • Interest rate on the loans and other transfers outside Sudan 15% • Final tax for the non resident companies doing services in Sudan 7%
Personal Income tax Individual income tax rates are based on amount of gross salary is subject to 15% taxation after deducting the exempted salary.
Withholding tax Sudan does not levy withholding tax on dividends. Dividends are subject to stamp duty at the rate of 1%.
Loan interest paid to non‐residents is subject to 15 per cent withholding tax.
Royalties paid to a non‐resident company are subject to a 15 per cent withholding tax.
Management consultant fees paid to a non‐resident subcontractor are subject to a 15 per cent withholding tax.
Payments from resident companies to non‐resident subcontractors for interest and other services are subject to a 7 per cent withholding tax.
Import of goods paid for by a resident company is subject to a 2 per cent creditable withholding tax.
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Payments from resident companies to entities registered in Sudan as a branch of a foreign company are subject to a 5 per cent creditable withholding tax.
Capital gains tax Capital gains tax is charged at 2 percent on gains from the sale of land and buildings, sale of vehicles, and sale of securities, shares and bonds.
Value Added Tax Value Added Tax (VAT) is levied at a standard rate of 17per cent. A special rate of 30 per cent applies to telecommunications services. VAT applies to the supply of most goods and the provision of services, including importation of goods and services into Sudan.
FollowingactivitiesareexemptedfromVAT. All types of Local agricultural products which are sold in its natural form Animals, meat, hens and its products, fish, milk and its products Fertilizers Agricultural seeds Medicines for human and animal uses Wheat flour which is produced locally Bread The imported goods which are exempted from the tax and customs according to provisions of
the immunities and privileges of 1956 act. Goods imported under the treaty exemption agreement with Sudan government.
ExemptedServices Financial services, which include financial services for banks and money operating companies,
financial funds and sale of share and securities and bonds. Insurance services Education services Medical services Rental and sale of real estate for residential purpose. All goods and services which are exempted by the Minister of Finance and Economics according
to recommendation of the taxation secretary.
Transfer pricing and thin capitalisation Transfer pricing is not applicable in Sudan.
Stamp and transfer duty Stamp duty rates vary in Sudan and are dependent on the type of instrument. Its overall rate is very nominal.
Double tax treaty with Mauritius No
EXCHANGE CONTROLS Since the secession of South Sudan and the loss of crucial oil revenue streams, Sudan has faced a severe shortage of foreign exchange reserves and stricter exchange controls have been enforced. While Sudanese and expatriates are permitted to hold foreign currency accounts in commercial banks, access to
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the currency can be delayed or limited without prior warning. Foreign companies operating in Sudan must have the permission of the Central Bank of Sudan to repatriate profits and foreign currency.
IMPORTS AND EXPORTS Sudan’s main exports include gold, oil and petroleum products, cotton, sesame, livestock, groundnuts, gum arabic and sugar. Principal imports include foodstuffs, manufactured goods, refinery and transport equipment, medicines and chemicals, textiles and wheat.
Under the Exporters and Importers Registration Act 2008 no person may engage in export or import business unless registered in the Exporters and Importers Register and obtains a certificate of such registration.
ACCOUNTING PRINCIPLES Sudan has adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).
INDUSTRIAL RELATIONS The main legislation regulating labour matters in Sudan is the Labour Act 1997 (the ‘Act’). Under the Act the Federal Minister of Labour may issue regulations, orders and rules necessary for the implementation of the Act.
In addition to the Act, the Organization of Employment of Non‐Sudanese Act 2001 provides for the rules regarding employment of foreigners in Sudan, the Minimum Wages Act 1974 provides for the rules regarding minimum wages and the Social Insurance Act 1990 provides for the rules regarding social security.
The Act comprises 127 sections, divided into 14 chapters, including Preliminary Provisions, Manpower, Organization of Employment, Employment of Women and Minors, Contracts of Employment, Wages, Advances and Other Payments, Hours of Work and Leave, Termination of Contract of Employment, Severance Pay, General Provisions, Industrial Safety, Labour Disputes and Stages of Settlement, Stages of Settlement of Labour Disputes and Final Provisions.
The probationary period shall not exceed three months, excluding any training period. In case a contract of employment is not for a definite term and where the probationary period expires without termination of the contract by one of the parties, the contract shall be deemed to be for an indefinite term.
Any employment contract exceeding three months shall be made in writing by the employer, however in case there is no written contract, the employee may prove his rights by any means of evidence.
A contract of employment may be for a limited or unlimited term. A contract for a limited term shall not exceed two years and shall not be renewed more than once with the same employer. The period of renewal shall be considered as continuation of the preceding service. Where the employee continues in service beyond the renewed term, the contract shall be deemed for indefinite term. Any written contract which does not indicate that it is for a definite term or for the performance of a specific job or for the replacement of another employee shall be deemed to be for an indefinite term.
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Rules regarding termination of contract of employment are as follows: 1. A contract of employment may be terminated with notice for:
i. inability of the employee to perform or becoming sick after the prescribed period has
expired and upon medical certificate; ii. cessation of the job or the expiry of a definite term contract; iii. total destruction of the establishment; iv. attainment of the age of sixty unless the two parties agree otherwise v. the dismissal of the employee during the probationary period or his leaving the
workplace during that period; vi. agreement between the two parties in writing to terminate; vii. dissolution or liquidation of the establishment provided that such dissolution or
liquidation is certified by the competent authority; viii. resignation of the employee; ix. death of the employee.
In case of failure to give notice as appropriate, the non‐defaulting party shall be entitled to compensation equivalent to the wage payable for the period of notice.
2. In case an employee commits repeated violations and receives a notice of dismissal after all or the maximum fines were exhausted, the employer may, in case of any further violation, terminate an indefinite term contract by giving a notice. In case of unfair dismissal (i.e. not falling within one of the above cases) a compensation equivalent to the employee’s wage for six months would be payable by the employer.
3. The Employer may terminate employment without any notice in the following cases:
i. Use of fraudulent identity or presentation of forged certificates or documents; ii. Employee’s fault causing serious material loss for the employer; iii. Failure to observe safety instructions posted in the workplace; iv. Failure to fulfil contractual obligations; v. Disclosure of industrial or commercial secrets; vi. Conviction by an offence negatively affecting honour, honesty or public morals or
commitment of an offence against morals in the work place; vii. Assault on the employer, his representative, the supervisor or another fellow employee
at the work place or for a reason related to work; viii. If the employee is found in a state of inebriation or under the effect of a drug during
working hours, provided that such a state is certified by a doctor.
4. An employee may terminate his contract of employment without prior notice to the employer in the following cases:
i. If the employee is misled as to the contract of employment; ii. Failure by the employer regarding his legal or contractual obligations; iii. Assault by employer or his representative on the employee; iv. Serious threat to the safety or health of the employee provided the employer is aware of
the said threat and has not taken the necessary measures to remove the threat.
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5. The Employer may apply to the competent authority for reduction of the number of its employees or to close the workplace for economic or technical reasons. The competent authority shall establish tripartite committees which shall be formed of equal representatives of the government, employees and employers; the committee shall examine the applications for closure of workplaces and reduction of employees and give their advice.
Official hours of work are 48 hours per week or 8 hours per day. Working hours shall be reduced by one hour during the month of Ramadan for fasting employees and for breastfeeding females for two years as from the date of birth of the child.
Under the Organization of Employment of Non‐Sudanese Act 2001 an employer, with no special or normal residence permit, who employs non‐Sudanese shall train Sudanese and submit a training and Sudanization plan to the Minister’s approval.
Insurance with the National Social Insurance Fund is compulsory; each employer must be registered, and register its employees, with the Fund. Basically the law requires every employer to deduct 8% of each employee’s wage, add to it 17% of such wage and pay the total of 25% as social insurance contribution to the National Social Insurance Fund. In case the employer fails to deduct the 8% from the employee’s wage for the relevant month, the law prohibits it from making the deduction; however its liability to pay the 25% of the wage to the Social Insurance Fund remains.
The legal minimum wage in Sudan is SDG200per month.
Sudan has signed and ratified all major International Labour Organisation (ILO) conventions’ protecting workers rights. However, labour regulations are not consistently enforced and fall short in practice of international standards.
Expatriate workers must have valid residency and work permits or face deportation and imprisonment.
REAL PROPERTY The law does allow for the purchase of privately or publically held land in Sudan. The government has provided land without transferring ownership to foreign companies as an investment inducement. Land may be leased in Sudan without restrictions on the amount or the duration. The lease may not be transferred without permission.
Registering property requires six steps and takes an average nine days. The cost of registering a property totals approximately 2.5 per cent of the value of the property, plus SDG672. The World Bank’s Doing Business Report 2013 ranks Sudan 37th out of 183 countries in terms of the ease of registering property.
Land registration is regulated by the Land Settlement and Registration Act 1925 under which land registry is set up.
CORRUPTION Transparency International ranks Sudan in the bottom five countries in the world in its 2013 Corruption Perception Index.
Sudan signed the UN Anticorruption Convention in 2005 and the African Union Convention on Preventing and Combating Corruption, but has yet to ratify either agreement.
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The Illegal and Suspicious Enrichment Act 1989 provides for a department within the Ministry of Justice to receive reports and investigation regarding corrupt practices especially regarding public money.
COMPETITION The following legislations had been passed recently;
Organization of Competition and Prevention of Monopoly Act 2009. This Act applies to all commercial agreements and transactions regarding goods or services, and it provides for the following: First: Prevention of monopoly, by outlawing any agreement, contract, transaction, conduct and/or arrangement regarding the following:
i. reduction, increase or control of sale or purchase prices of goods or services, ii. restrictions on production, manufacture, distribution or marketing of goods or limitation of
services, iii. dissection or division of any existing or potential market on geographical, consumer, importers,
time or other basis with the aim of control; iv. coordination regarding bids or other offers for supply of goods or services or nonparticipation
therein and share the proceeds; v. agreements, whether among competitors or non‐competitors, with the aim of pressurizing on
consumers or importers; vi. taking any action or conduct restricting freedom of participation in production, development, or
distribution of goods or services. Second: Misuse of controlling/dominating position in a specific market. Such misuse is prohibited.
Examples of such misuse are:
i. granting exceptional rights regarding distribution of goods or services exclusively whether such rights are with respect to geographical area, consumers, time or other basis;
ii. binding a competitor not to produce, manufacture, use, develop, distribute or market a specific good or provide specific services;
iii. determining the price or conditions for the sale of goods or provision of services by a competitor; iv. sale of goods or services if such sale is conditional that the buyer shall buy other goods or
services from the seller or from another entity or not to buy certain goods or services from another entity;
v. sale of products for a price lower than the price fixed by the competent authority; vi. discrimination in prices by entering into special or preferring deals. Third: Consumer protection,
which includes: a. prevention of consumer misleading/fraud, including making misleading information
about the sale, prices, basic elements, the origin or source of goods or services; b. conceal of lack of goods of legal or customary requirements; c. provision of incorrect information regarding the sale or distribution of goods which
affect in consumers' decision making; d. practices which restrict the consumers freedom in selecting the goods or services,
including making objective pricing of goods or services or objective comparison with similar goods or services more difficult;
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e. entering into undisclosed transactions. Fourth: injurious merger, which includes anti‐competition mergers. Any merger may be made only after obtaining the approval of the Council for Competition and Prevention of Monopolies.
External Trade Organization Act 2009 Under this Act external trade means export, import, transit and border trade. The Act provides that its objective is to achieve freedom of trade and free competition, open markets to reduce or eliminate nontechnical restrictions and create free access to markets, and to encourage movement of goods in a fair manner. This short Act directs the Ministry of External Trade to take actions and policies to facilitate flow of goods and services, provision of data and information regarding commercial laws and regulations, organization of export and import and border trade and export promotion.
Anti-Dumping Act 2009 This Act is applicable to any transaction which causes damage to local industries. An Anti‐dumping Committee set up pursuant to this Act would be in charge of receiving complaints, conducting investigations and taking actions regarding any alleged dumping practice.
LEGAL FORMS OF INCORPORATION IN SUDAN The principle forms of business entities commonly used in Sudan are sole traders, partnerships, public or private limited liability companies, and branches of foreign registered companies. The World Bank’s Doing Business Report 2013 ranks Sudan 122nd out of 183 countries in ease of starting a business. This is a six rank improvement on the previous year.
On average, completing the necessary registrations required to start a business in Sudan takes 36 business days. The table below provides a summary of the procedures and the associated completion time and cost for setting up a private limited liability company:
Procedure Estimated Time to
complete
Associated Cost to in SDG
1 Submit application for preliminary approval to Registrar and reserve company name
3 200
2 Notarize memorandum and articles of Association
2 350
3 Notify tax chambers 1 55
4 Register with commercial registry 4 Stamp duty and other application/administration fees
5 Apply for tax identification number 1‐2 5
6 Register for VAT 2 (simultaneous with No charge
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previous procedure)
7 Register with labour authorities 14 192
8 Enroll employees for social security 3‐7 25
9 Make a company seal 2 40
The Companies Act 1925 regulates incorporation of companies in Sudan by way of registration. Under this Act a foreign investor may either incorporate a company registered in Sudan as a Sudanese company or set up a branch of a foreign company. The Act recognizes the following forms of companies:
a. private companies with limited liability; b. public companies (also with limited liability) but with the right to offer its shares to the public at
large; c. state owned companies (100% owned by the state).
INDUSTRY SECTORS
Agriculture Agriculture is the mainstay of the Sudanese economy. The country’s prominent agricultural products include cotton, groundnuts, sorghum, millet, wheat, gum arabic, sugarcane, cassava, mangoes, papaya, bananas, sweet potatoes, sesame and livestock.
Financial and banking services Sudan’s financial system is relatively small by regional standards. The banking sector is comprised of 32 banks, including five foreign and four state‐owned banks. Sudan remains under‐banked, with banking and other financial institutions concentrated around Khartoum. The African Economic Outlook 2011 reported that while private sector loans and deposits doubled between 2005 and 2009, their ratios to GDP remained low.
The financial and banking sector is regulated by the Bank of Sudan (under the Sudan Central Bank Act 2002), the Khartoum Stock Exchange (under the Khartoum Stock Exchange Act 1994) and the Insurance Supervisory Authority (under the Insurance Control Act 2001).
Telecommunications In Sudan the main legislation regarding regulation of telecommunication business is the Telecommunications Act 2001 (the "Act") and the General Regulations of Telecommunications 2002 (the "Regulations") which have been issued pursuant to section 46 (1) of the Act. The Act provides for the establishment of a public corporation named the "National Telecommunications Corporation" ("NTC") to be accountable in performing its duties to the federal minister in charge of telecommunications (currently the Minister of Information and Communications).
Under the Act the duties and powers of NTC include, inter alia, licensing to operate in the field of telecommunications services and other activities. The Act also provides that no person may possess, establish or operate any telecommunications network, systems or equipment without obtaining a licence issued pursuant to the Act.
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The Regulations provide that the applicant for a telecommunications licence must be a company registered in Sudan authorised to operate in the field of telecommunications, or shall undertake to register such Sudanese company within 30 days from the date of notification that the application has been approved.
The Regulations provide, inter alia, that the licence holder shall inform NTC's general manager of any amendments regarding the licence holder's memorandum of association especially as regards its shareholders. The licence application form (based on which telecommunications licence is issued) contains information about the shareholders of the applicant (including their names, nationalities, shareholders' agreement if any).
As regards expiry of PCT's licence the Act provides that once the licence has been cancelled or has expired the licence holder or the person who is in possession of the licence must deliver the licence to NTC, and the licence holder may not accept new subscriptions except to the extent necessary for transfer of the subscribers to another party holding licence after the written approval of NTC's general manager. According to the strict wording of the law once a licence has expired the licence holder may not carry on the business regarding which the licence has been issued.
Energy and Natural Resources The gold mining industry has become a key focus of the Government of Sudan in an attempt to generate new revenue streams. National and foreign companies are being encouraged to invest in the Sudanese gold sector and this has led to a significant increase in gold production and exploration activity in the country. In an attempt to foster further investment, the Khartoum stock exchange is planning to significantly expand its activities by trading in gold and other commodities. Sudan’s other mineral resources include iron ore, copper, chromium ore, zinc, tungsten, mica and silver.
INTELLECTUAL PROPERTY Sudan is a signatory to the World Intellectual Property Organisation (WIPO).
The following legislation had been promulgated regarding this field
i. The Trademark Act 1969; ii. The Patents Act 1971; and iii. The Copyright Act 1996.
DISPUTE RESOLUTION Sudan’s investment law provides for international arbitration. Sudan is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Sudan has not signed the 1958 New York Convention.
Under the Arbitration Act 2005, subject to the provisions of any international agreement regarding arbitration to which Sudan is party, the provisions of the Act shall apply to every arbitration conducted in Sudan or abroad where the parties thereto have agreed to be subject to the Act, whenever the legal relationship is of a civil nature, whether contractual or non‐contractual. If there is an arbitration agreement regarding the subject matter of a claim before a court, the court shall dismiss the claim if the defendant asks so in the first session.
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TANZANIA
Capital City: Dodoma (political capital); Dar~es~Salaam (commercial capital)
Currency: Tanzanian shilling (TZS)
Official languages: Swahili and English
Government: Unitary republic with multi‐party democracy
President: Hon. Jakaya Kikwete
Population: 46,218,486 ( 2011 estimate)
GDP: US$ 28,248,844,763 (2012 estimate World Bank)
Time Zone: GMT +3
TANZANIA FIRM PROFILE
ADEPT CHAMBERS Tanzania is regarded as one of the world’s fastest growing economies, with extensive investment activity in coal reserves, precious metal mining, agribusiness and natural gas exploration.
ADEPT Chambers is a leading full‐service corporate and commercial law firm with substantial experience and knowledge of the Tanzanian market. The firm operates in both mainland Tanzania and Zanzibar.
ADEPT Chambers strives to be the most successful corporate legal practice in Tanzania. The firm adopts a practical, commercially vigilant approach to problem solving and strives to develop long‐term client relationships.
ADEPT Chambers is frequently praised for its approachable and attentive team of lawyers. It is consistently recognised as a leading legal practice in Tanzania by international directories including Chambers Global and PLC Which Lawyer?.
“This firm’s international clients value its deep Tanzanian experience as well as the regional links it has developed” – Chambers Global 2012
Contact Information
A: 1st Floor, Peugeot House,
36 Ali Hassan Mwinyi Road
P: P.O. Box 79651, Dar es Salaam, Tanzania
T: +255 22 212 0954/6
F: +255 22 212 1625
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TANZANIA COUNTRY PROFILE
POLITICAL OVERVIEW Tanzania has a long record of political stability: It has had nearly half a century of political stability as a sovereign country, including over ten years as a multiparty democracy. There have been no coups, civil wars or prolonged periods of mis‐governance. According to the 2012 Ibrahim Index of African Governance, which measures governance using a number of different variables, Tanzania’s government is ranked 10th out of 52 countries.
The President of Tanzania and Parliament members are elected concurrently by universal adult suffrage every five years. The President then appoints a prime minister who serves as the government’s leader in Parliament. Elections for president and all parliamentary seats were last held in October 2010. The next presidential and parliamentary elections will be in 2015.
For administrative purposes, Tanzania is divided into 30 regions ‐ 25 on the mainland, three on Zanzibar, and two on Pemba, Zanzibar's second isle. The National Assembly, comprising 357 members enacts laws applying to the United Republic of Tanzania and laws applicable exclusively to the mainland. Zanzibar maintains extensive autonomy within Tanzania, with its own President, legislature and bureaucracy. Zanzibar’s House of Representatives legislates on internal matters.
ECONOMIC OVERVIEW Despite having one of the world’s poorest economies in terms of per capita income, Tanzania’s real GDP growth rate has consistently averaged over 6% for the past seven years. Much of this growth is attributed to strong performances in gold production and tourism. The economy still depends heavily on agriculture, which accounts for more than one‐fourth of GDP and employs over 60% of the workforce.
Since 1996, Tanzania has made extensive efforts towards macroeconomic stabilization and structural reforms. Fiscal stimulus and a loosening of monetary policy helped ease the impact of the global recession, and Tanzania was able to maintain relatively strong growth in 2010. The IMF’s most recent Debt Sustainability Analysis indicates that debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative combined with sound macroeconomic policies place Tanzania at low risk of debt distress.
REGULATORY ENVIRONMENT The Index of Economic Freedom 2013 ranks Tanzania 13th out of 46 countries in the sub‐Saharan Africa region. In recent years the Tanzanian government has made substantial efforts to privatise commercial sectors that were previously government owned or managed. Consequently regulations concerning foreign investment have been simplified and streamlined. Foreign and domestic investors receive equal treatment under the law in most sectors. There are no limits on foreign ownership of enterprises and investment is not screened. Foreign exchange and capital transactions are permitted with few restrictions and profits, dividends and capital can be repatriated.
However, further institutional reforms would help to lift the burden of the regulatory system. Whilst requirements for launching a business are not time‐consuming, the licensing process can be costly. The legal system is also subject to delays.
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BI‐LATERAL AND MULTI‐LATERAL TREATIES Tanzania is a member of the South African Development Community (SADC), the East African Community (EAC), the African, Caribbean and Pacific Group of States (ACP), the World Trade Organisation (WTO), and the African Union (AU).
Tanzania has double taxation agreements with Canada, Denmark, Finland, India, Italy, Norway, South Africa, Sweden and Zambia. Bilateral investment treaties have been entered into with Denmark, Egypt, Finland, Germany, Italy, the Republic of Korea, the Netherlands, Sweden, Switzerland and the United Kingdom. Countries with which negotiations are continuing include Zimbabwe, United Arab Emirates, Russia, Seychelles, Mauritius, Egypt, Yugoslavia and Oman.
INVESTMENT PROMOTION
Institutions governing investment promotion Whilst foreign investment in Tanzania was not welcome in the socialist era, legislation developed from the early 1990s has significantly improved the investment climate in the country. Investment is actively promoted and encouraged under the Tanzania Investment Act, 1997 (the “TIA”) by the Tanzania Investment Centre (“TIC”). All Government departments and agencies are required by law to cooperate fully with TIC in facilitating investment. The TIC is regarded as a ‘one stop facilitative centre for all investors’. Its roles include assisting in the establishment of enterprises; facilitating the acquisition of licenses, permits, visas and approvals; helping to address administrative barriers confronting both local and foreign investments; and issuing Certificates of Incentives.
Investment incentives To encourage investment the Government has redrawn tax codes, floated the exchange rate, licensed foreign banks, and created the TIC to cut red tape. Certificates of Incentives are offered to investors under the Tanzania Investment Act, 1997. Incentives can be broadly categorised into fiscal incentives (import duty and VAT exemption on project/capital goods) and non‐fiscal incentives. For projects of over USD 20 million offering specific beneficial impacts to the society or economy, investors can negotiate special incentives from the Tanzanian Government.
The Special Economic Zones Act (the “SPEZA”) creates special economic zones to promote priority economic activities in key sectors. These sectors include industry, tourism, commercial activities, forestry, information and communication technology, and banking and finance.
Companies licensed under the SPEZA enjoy various incentives and exemptions:
a. Exemption from payment of withholding tax on rent, dividends and interest for the first ten years b. Exemption from payment of corporate tax for an initial period of ten years.
TAX
Income tax Resident companies and businesses are taxed on worldwide income. Non‐residents are taxed on Tanzania‐source income. A corporation is a resident if it is incorporated under Tanzania’s Companies Act or, at any time during the tax year, management and control of its affairs are exercised in Tanzania. Individuals are resident if they are domiciled in Tanzania; spend more than 183 days of the tax year in Tanzania; have a combined presence of at least 122 days in that tax year and the two preceding tax years;
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or are employees or officials of the Government of Tanzania posted abroad during the tax year. Income tax in Tanzania is chargeable pursuant to the provisions of the Income Tax Act (the “ITA”).
In accordance with the ITA, the total income of a corporation is taxed at the rate of 30%. Newly listed companies on the Dar es Salaam Stock Exchange (DSE) that have issued at least 30% of their share capital to the public are subject to a corporate income tax rate of 25% for 3 consecutive years from the date of listing.
Companies in export processing zones are exempt from income tax and withholding tax on dividends, interests and rent for the first 10 years.
Withholding tax Withholding tax is payable on dividends (10%), interest (10%), royalties (15%) and management fees (15%).
Capital gains tax Under the ITA capital gains tax is payable on realisation of any investment asset. Investment assets include shares and securities in a corporation, beneficial interest in a non resident trust and interest in land and buildings. The rate varies depending on the legal nature and residency status of the seller, including whether the investment asset being disposed off is a Tanzanian asset or an overseas asset.
Hence, a resident Tanzanian individual is required to pay a CGT rate of 10% on the gain made from the disposal of a Tanzanian asset – and a CGT rate of 30% on the gain made from the disposal of an overseas asset. On the other hand, a resident Tanzanian corporate entity is obliged to pay a CGT rate of 30% on the gain made from the disposal of either a Tanzanian or an overseas asset.
Conversely, a non‐resident individual is obliged to pay a CGT rate of 20% on the disposal of a Tanzanian asset. No CGT is applicable in relation to a non‐resident individual’s disposal of an overseas asset. A non‐resident corporate entity has to pay a CGT rate of 30% on the disposal of a Tanzanian asset; no CGT is applicable in relation to a non‐resident corporate entity’s disposal of an overseas asset.
Other tax Value added tax (VAT) is charged on the supply of goods and services. The basic rate of VAT is 18%. Exports of certain goods and professional and communications services are subject to VAT at zero rate. The registration threshold is a turnover of TZS 40 million over a period of 12 consecutive months.
Transfer pricing and thin capitalisation Tanzanian transfer pricing rules require that transactions between associated persons (both resident and non‐resident) be on arm’s length terms. Definitive transfer pricing guidelines are currently being drafted.
A company is said to be thinly capitalised when its capital is made up of a much greater proportion of debt than equity. Certain interest deductions made may be disallowed by the Tanzania Revenue Authority (TRA) if the company is thinly capitalised. The total amount of interest that an entity may deduct under its total income is limited to the interest portion in respect of debt that does not exceed the 70:30 debt‐to‐equity ratios.
Stamp and registration fees Stamp duty may be levied either as a specific amount or at progressive rates up to a maximum of 1% of the value of the consideration on a transfer.
Registration fees are also payable on a transfer of land.
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Double tax treaty with Mauritius No
EXCHANGE CONTROL There are no exchange controls in Tanzania. Restrictions were eliminated under the Foreign Exchange Act, 1992 in order to attract investment and simplify international transactions. Residents can hold bank accounts in any currency. Repatriation payments can generally be made in any currency subject to production of appropriate supporting documentation.
IMPORTS AND EXPORTS Under Tanzania’s 2011 trade policy, both internal and foreign trade regimes have been liberalized. Tanzania’s export trade is dominated by gold and agricultural products such as coffee, cashew nuts, tea and tobacco. Major imports into Tanzania include machinery and transportation equipment, crude oil, industrial raw materials and consumer goods. India and China are becoming the country’s leading suppliers.
The Customs and Excise Department administers all taxes and duties on international trade including import duty; excise duty on imports; and VAT on imports.
ACCOUNTING PRINCIPLES Tanzania has adopted and applies International Financing Reporting Standards (IFRS) and certain local standards.
INDUSTRIAL RELATIONS The Employment and Labour Relations Act, 2004 (the “ELRA”) regulates, amongst other things, conditions of employment for employers and employees. The law expressly prohibits the use of forced labour, as well as the employment of a child under the age of fourteen years. Maximum working hours, compensation, annual leave, maternity leave, complaint procedures, night and holiday work, and medical care are also regulated by the ELRA.
The National Social Security Fund Act (the “NSSFA”) provides for a retirement age of 60 years. The NSSFA requires every employer, for every contribution period after the appointed day during which he employs an employee, to pay to the NSSF a contribution which consists of the employer’s contribution and the employee’s contribution at the prescribed percentage. The applicable percentage is 20%, with each of the employer and employee contributing 10%.
Expatriates who want to work in Tanzania are required to obtain an entry permit under the Immigration Act (Cap 54). The policy and practice of the Labour and Immigration authorities is to decline applications for work and residence permits where local skills are available to meet the requirements. A permit may be issued for any period not exceeding three years and may be renewed for any period not exceeding two years. However, the total period of the validity of the original permit and its renewals shall not exceed five years.
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REAL PROPERTY All land in Tanzania is State land, vested in the President of the United Republic of Tanzania as trustee for the nation. Statutory leases of up to 99, 66 or 33 years may, however, be obtained. These leasehold interests represent title analogous to ownership and may be sold and encumbered. Foreign nationals and foreign companies cannot own land in Tanzania. A Tanzanian company wholly owned by foreigners or majority owned by foreigners can hold land through a derivative right if it holds a Certificate of Incentives issued by the TIC.
CORRUPTION Tanzania enacted the Prevention and Combating of Corruption Act in 2007. The Act makes it an offence for any person to offer an advantage to a public official as an inducement to or reward for or otherwise on account of such public official’s giving assistance or using influence in or having given assistance or used influence to assist in the promotion, execution or procuring of any contract. Corruption investigation and prosecution is undertaken by the Prevention and Combating of Corruption Bureau.
COMPETITION Competition is regulated by the Fair Competition Act, 2003 (the “FCA”). The FCA promotes and protects effective competition in trade and commerce. It also protects consumers from unfair and misleading market conduct. The main aim of the FCA is to increase efficiency in the production, distribution and supply of goods and services, promote innovation, maximize the efficient allocation of resources and protect consumers.
The FCA prohibits anti‐competitive agreements and the misuse of market power. It generally and specifically prohibits price fixing, collective boycotts, output restrictions and collusive bidding. Mergers and acquisitions (direct or indirect) involving turnover or assets above a prescribed threshold (currently TZS 800,000,000) must be notified to and may be examined by the Fair Competition Commission (“FCC”). A merger is prohibited if it creates or strengthens a position of dominance in the market.
It is worth noting that the FCA also applies to conduct outside Tanzania relating to the supply or acquisition of goods or services within Tanzania, or any acquisition leading to a change of control of part of a business or an asset of a business located in Tanzania.
CONSUMER PROTECTION Consumer protection legislation in Tanzania is contained primarily in the FCA and the Law of Contract Act (Cap 345). The LCA regulates contracts and extra‐contractual liability.
The FCA defines the standard of goods permissible for supply and sale and the liability of manufacturers, suppliers, sellers or their agents for product defects which cause loss or damage to consumers.
Misleading conduct in relation to the advertisement or supply of goods and services is also prohibited, and there are a number of terms implied into consumer contracts for the protection of consumers.
The FCA implies a number of conditions in contracts for the supply of goods. There is an implied warranty that goods supplied by description correspond with that description. Goods supplied to consumers in the course of business carry an implied warranty of merchantability.
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LEGAL FORMS OF INCORPORATION IN TANZANIA The principal forms of business arrangements in Tanzania are sole proprietorships, partnerships, trusts, cooperative societies, non‐governmental organizations and companies.
The Companies Act, 2002 recognises three types of companies: a company limited by shares; a company limited by guarantee; and an unlimited company. Companies may either be private companies or what are commonly known as “public companies”.
A foreign investor can set up a place of business in Tanzania by either setting up a branch or incorporating a company. The company can be incorporated as an independent entity or a subsidiary of the parent company which is located in the foreign investor’s country.
Except in certain cases, there are no minimum capital requirements. A company can be incorporated with any amount as its authorised share capital.
The 2013 World Bank ‘Doing Business Report’ ranks Tanzania 134th out of 183 economies in terms of the ease of conducting business.
The table below provides a summary of the procedures and the associated completion time and cost for setting up a private limited company:
Procedure Time to
complete
Cost to complete
1 Apply for clearance of the proposed company name at the Business Registration and Licensing Authority (“BRELA”)
2‐3 days No charge
2 Apply for a certificate of incorporation from the Registrar of Companies
7 days TZS 400,000 (dependent on the share capital )
3 Apply for taxpayer identification number (TIN) with the Tanzania Revenue Authority
Under the new internal policy Tanzania Revenue Authority require at least one director to go to their offices to provide fingerprints and digital pictures
7‐ 14 days No charge
4 *Income tax officials inspect the office site of the new company
1 day No charge
5 *Apply for Pay As You Earn (PAYE) with the Tanzania Revenue Authority
1 day No charge
6 Apply for business license from the regional trade office (depending on nature of
7‐14 days depended on the sector
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business)
7 *Have the land and town‐planning officer inspect the premises and obtain signatures
1 day Transport cost, trivial
8 Apply for VAT certificate with the Tanzania Revenue Authority
7‐14 days No charge
9 Register for the workmen’s compensation insurance at the National insurance Corporation or other alternative insurance policy
1 day Cost of insurance varies depending on number of employees and coverage
10 Obtain registration number at the National Social Security Fund (NSSF)
7 days No charge
*Takes place simultaneously with another procedure
INDUSTRY SECTORS
Agriculture Agriculture is the mainstay of the Tanzanian economy, providing livelihood to approximately 60% of the population. Food and raw materials account for almost half of GDP. Cash crops, including coffee, cotton, tea, cashew nuts, sisal, and cloves account for the majority of export earnings.
There is considerable scope for diversification and expansion of the agricultural sector through accelerated food crop production and increase of non‐traditional exports. Arable land is underutilised due to outdated production systems in tillage, storage and processing. It is estimated that only 25% of the arable land is utilised. Tanzania’s climate is ideal for horticulture, coffee, tobacco, sisal, cashew nuts and sugar. Tanzania has about sixty million hectares of land suitable for livestock development of which only approximately 26% is utilised.
There are numerous statutes regulating agricultural investment, depending on the particular agricultural activity the investor undertakes. Investment in the coffee sector is regulated by the Coffee Act (Cap 347) (the “Coffee Act”). Under the Coffee Act, a licence issued by the Tanzanian Coffee Board is required in order to buy, process, liquor, roast, warehouse, export or otherwise deal in any business in coffee. A licence or permit is not required if the person is obtaining coffee for personal use. Similar restrictions apply to cotton, tea, sugar, pyrethrum sisal and wheat production under the relevant Acts of Parliament. There are also various sectoral statutes that regulate the livestock, dairy and meat marketing industry.
Financial and banking services Tanzania’s relatively small financial sector is developing rapidly. Over thirty commercial banks are licensed and operating in Tanzania, and 50% of these are foreign‐affiliated. Restrictions on foreign banks are minimal. Credit is increasingly allocated at market rates and the range of commercial credit instruments available to the private sector is developing.
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The banking industry is governed by the Banking and Financial institutions Act, 2006 and the Bank of Tanzania Act, 2006. The banking industry is regulated by the Bank of Tanzania, which is responsible for formulating and implementing monetary policy.
The Dar es Salaam stock exchange (DSE) became operational in 1998. The securities currently being traded are Ordinary Shares of 17 listed companies, 5 corporate bonds and 8 Government of Tanzania bonds. The DSE has two market segments. The Main Investment Market Segment (MIMS) caters for big companies, while the Enterprise Growth Market Segment (EGMS) caters for medium sized growth oriented companies. Foreign investors can invest up to 60% in aggregate of the share capital of any listed company. Once invested there is a lock‐in period of six months before a foreign investor is allowed to exit. Foreigners can invest 100% in Corporate Bonds but are not allowed to invest in Government securities.
Energy The electricity sector in Tanzania is dominated by the Tanzania Electric Supply Company Limited (TANESCO) in a vertically integrated market structure carrying out generation, transmission, distribution and supply. In 1992, the National Energy Policy ended the monopoly held by the public utility and allowed private sector involvement in the electricity industry. This major policy reform enabled Independent Power Producers (IPPs) to operate in the power generation segment of the market.
The energy sector in Tanzania is governed by the Energy and Water Utilities Regulatory Authority Act (Cap 414) (the “EWUR Act”). The EWUR Act establishes the Energy and Water Utilities Regulator Authority (the “EWURA”) to regulate the issuance, renewal and revocation of the relevant licences. EWURA also determines the rates and shares of the services and monitors the performance of investments, as well as service quality and efficiency.
Tanzania has abundant untapped energy resources, which could be exploited for electricity generation. Coal reserves are estimated at about 1,200 million tons, 28% of which are proven. Natural gas is estimated at 44 billion cubic metres of proven reserves. Hydroelectric energy has a potential capacity of 4,700 MWh, of which only about 10% is developed. Solar, wind and geothermal sources remain relatively untapped.
Manufacturing The manufacturing industry in Tanzania is relatively undeveloped. The main industrial activities are dominated by small and medium sized enterprises (SMEs) and are mostly concentrated in Dar es Salaam. The sector primarily incorporates animal‐feed processing, beverages, textiles and apparel, leather, plastics, cement, and steel.
An expanding domestic market and the regional markets of the Southern African Development Community (SADC) and the East African Community (EAC) provide manufacturers in Tanzania with abundant opportunities.
Mining
Tanzania’s mining sector has been a key contributor to sustained economic growth over the past
decade. Available resources include gold, diamonds, gemstones, base metals and industrial
minerals.
The principal statute governing mining in Tanzania is the Mining Act 2010 (the “Mining Act”) and accompanying Mining (Mineral Rights) Regulations. Under the Mining Act no person can undertake any mining operations without a licence. The Commissioner for Minerals regulates the issuance of licences.
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There are a variety of licences issued under the Mining Act including:
a. Primary mining licences, which give exclusive rights to the holder to carry on mining operations in a designated mining area;
b. Prospecting licences, which grant permission to carry out prospecting operations; c. Retention of licences, which are given to holders of prospecting licences who have identified
mineral deposits but cannot immediately develop the deposits; d. Special mining licence, which permit the mining of minerals other than building materials; e. Gemstone prospecting licences, which permits prospecting for gemstones; f. Mining licences, which allow the mining of minerals or gemstones.
A corporate entity cannot obtain a primary mining licence unless all of it members and directors are Tanzanian citizens. This restriction does not apply to prospecting, mining or special mining licences. However, gemstone mining ventures require a local shareholding participation of 50% for licences to be granted.
Telecommunications The telecommunication sector was liberalized in 1993, opening the market for both local and foreign investment. The principal statute governing telecommunications in Tanzania is the Electronic and Postal Communications Act 2010. The industry is regulated by the Tanzania Communications Regulatory Authority (the “TCRA”) which licenses operators in each class of telecommunications.
The TCRA applies a converged licensing framework under which there are four main classes of license:
a. The Network Facility Licence, which authorises ownership and control of electronic communication infrastructure such as earth stations, public payphone facilities, radio communication transmitters and links and satellite hubs;
b. The Network Service Licence, which authorises the operation of electronic communication networks for the delivery of services including bandwidth services, broadcasting distribution services, cellular mobile services, access applications services and space segment services;
c. The Applications Service Licence, which authorises reselling or procurement of services from network service operators, but not the ownership or operation of services; and
d. The Content Service Licence, which authorises the provision of content services such as satellite broadcasting or terrestrial free to air TV and broadcasting.
Tourism Tourism is a critical industry in Tanzania. Tanzania is the first country in the world to allocate more than 25% of its total area to wildlife parks and game reserves. There are 12 national parks, 17 game reserves, 50 game‐controlled areas, a conservation area, two marine parks and two marine reserves.
Tanzania’s wildlife resources are among the finest in the world and have long been widely known. The Northern Circuit includes the Serengeti plains, the spectacular Ngorongoro crater, Lake Manyara and Africa’s highest mountain, Kilimanjaro. The Southern Circuit, comprising the Mikumi and Ruaha National Parks and the Selous Game Reserve, remains relatively underexploited. Additional natural attractions include the sandy beaches north and south of Dar es Salaam, the spice islands of Zanzibar and deep sea fishing at Mafia and Pemba Islands.
The Tourism Industry in Tanzania is primarily regulated by the following Acts:
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a. The Wildlife Conservation Act (Cap 283); and b. The Tourism Act, 2008 (Cap 65)
INTELLECTUAL PROPERTY Tanzania is a party to the Paris Convention and uses the Nice International Classification of Goods and Services. The Business Registration and Licensing Agency (BRELA) in Tanzania handles the registration of trademarks and copyrights. Many international marks are registered in Tanzania. The Fair Competition Commission (established under the FCA) also handles seizure of counterfeit products.
DISPUTE SETTLEMENT The Tanzanian legal system is largely based on English common law.
The Commercial Court of Tanzania was established in 1999 as a division of the High Court dealing with disputes of a commercial nature. There is also a Lands Division of the High Court dealing with land matters. Finally, the Commission for Mediation and Arbitration has been established under the Labour Institutions Act to handle labour disputes.
Tanzania is a member of several international organizations that help protect investment. Any dispute arising between the Government and investors may be settled amicably through negotiations or may be submitted for arbitration under the international agreements listed below:
• The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which entered into force on 7 June 1959;
• The Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965, which entered into force on 14 October 1966;
• The Convention establishing the Multilateral Investment Guarantee Agency of 1985, which entered into force on 12 April 1988; and
• The Paris Convention for the Protection of Industrial Property of 1883, revised at various times and amended in 1979, and signed by Tanzania in 1994.
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UGANDA
Capital City: Kampala
Currency: Uganda Shillin (USH)
Official languages: English and Swahili
Government: Unitary republic
President: Hon. Yoweri Museveni
Population: 34,509,205 ( 2011 estimate)
GDP: US$ 16.809 billion (2012 estimate)
Time Zone: GMT +3
UGANDA FIRM PROFILE
MASEMBE, MAKUBUYA, ADRIKO, KARUGABA & SSEKATAWA ADVOCATES (MMAKS ADVOCATES)
Continuing business reforms in Uganda make the country an increasingly attractive place to conduct business, particularly as the country begins to exploit its oil and gas reserves.
As one of the largest law firms in Uganda, MMAKS Advocates is committed to delivering practical and quality legal services with professionalism and integrity.
The firm adopts a proactive approach to high quality, timely and efficient legal services. MMAKS Advocates prides itself on a policy of open communication, teamwork, and client satisfaction.
The firm provides strategic and commercially insightful transactional advice to an array of high profile local and international entities.
International legal directories such as Chambers Global, IFLR 1000 and PLC Which Lawyer? regard MMAKS Advocates as a Tier 1 law firm within Uganda.
“We are most impressed with the depth and breadth of experience within the firm” – Chambers Global 2013
Contact Information
A: 3rd Floor, Diamond Trust Centre, Plot 17/19
Kampala Road
P: P.O. Box 7166, Kampala, Uganda
T: +256 414 259 920
F: +256 414 259 992
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UGANDA COUNTRY REPORT
POLITICAL OVERVIEW The Ugandan President is elected by universal suffrage every five years and acts both as the head of state and head of government. The President appoints a Vice President and Prime Minister to assist in the supervision of the cabinet.
The national legislature is formed by the National Assembly: the majority of members are elected by universal suffrage, whilst the remainder represents special interest groups including youth, women and the army.
Presidential and parliamentary elections are scheduled to be held in 2016.
ECONOMIC OVERVIEW The Ugandan government continues to adopt important policies to ensure economic rehabilitation and promote rapid economic development, and Uganda has won acclaim for its macroeconomic management in recent years. Infrastructure ruined by war and neglect, including transportation, communications and industrial systems, is being rehabilitated and rebuilt. Uganda was the first country to be eligible for the Heavily Indebted Poor Countries (HIPC) initiative and had virtually all of its foreign debts forgiven by the IMF, World Bank and major donors.
In terms of 2011 gross domestic product (GDP) by sector, Uganda’s economy consists primarily of services (52.1%), industry (26.1%) and agriculture (21.8%). Despite their decreasing contribution to Uganda’s GDP, the agriculture and fishing sectors employ approximately 80% of the country’s workforce.
In April 2010, the government launched the National Development Plan (NDP) and finalized a new five‐year National Development Plan (NDP) for fiscal years (FY) 2011‐2015, focused on transforming the economy. The NDP aims to raise average per capita annual income from USD 500 to USD 900 by 2013, double Uganda’s GDP, and increase the share of manufacturing to 30% of GDP. The economy is set to benefit from the planned start of oil production which will commence in the short term. Production is aimed to start with an output of 200,000 barrels per day from the estimated reserves of 3 billion in the Albertine Basin.
REGULATORY ENVIRONMENT Uganda generally provides an open climate for foreign investment. The 2012 Index of Economic Freedom ranks Uganda 8th out of 46 countries in sub‐Saharan Africa with a score above the world average.
Uganda has revised a range of laws and regulations to create greater government accountability, develop infrastructure, and build a more vibrant public sector. Between 2010 to date, the government has updated various laws, for example companies, bankruptcy, capital markets, e‐commerce, pensions and intellectual property. . Following the oil discoveries, the Government also revamped its sector oversight with the passing of two new laws. The Government is also considering legislation to govern public private partnerships.
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The government also made successful efforts to win back the Asian investors expelled from the Uganda during the Idi Amin regime. Foreign investment is allowed in all sectors of the economy that are not national security related, and companies may be 100 percent foreign owned.
BI‐LATERAL AND MULTI‐LATERAL TREATIES Uganda is a member of, among others, The East African Community (EAC), The Common Market for Eastern and Southern Africa (COMESA), The African, Caribbean and Pacific Group of States (ACP), the World Trade Organisation (WTO), and the African Union (AU).
Uganda currently has double taxation tax treaties with fifteen countries including Denmark, Egypt, India, Mauritius, Netherlands, Norway, UAE, South Africa, United Kingdom, Seychelles, and Zambia. The rate of tax generally under these treaties is between 10% and 15%. The Uganda tax regime has an automatic tax relief system for income of a resident person which is sourced outside Uganda, and has also already suffered tax in that other country. This ensures that the individual is not subjected to further taxation in Uganda on income that has already been taxed elsewhere.
INVESTMENT PROMOTION
Institutions governing investment promotion The Uganda Investment Authority (UIA) was established under the Investment Code Act, (Cap 92) (the “ICA”) to contribute to the economic development of Uganda by promoting and facilitating private sector initiatives. It seeks to achieve this by promoting Uganda as an investment location, easing constraints on investment through its one‐stop service, and encouraging inward investment by offering competitive incentives.
Investment incentives A foreign investor in Uganda is required to obtain an investment license from the UIA. A foreign investor is defined under the ICA as a company in which more than 50% of the shares are held by a person who is not a citizen of Uganda.
A foreign investor qualifies for incentives under the ICA where the investor makes a capital investment or an equivalent in capital goods worth at least USD 500,000 by way of capital invested. The Second Schedule to the ICA contains the priority investment areas for which additional benefits may be granted.
The benefits that can be negotiated by or granted to the holder of an investment certificate are as follows:
• concessional rates of import duty and other taxes as may be specified in the Finance Acts for an investor who is importing any plant, machinery, equipment, vehicles or construction materials for an investment project;
• exemption from the payment of import duty and sales payable of one motor vehicle for personal use and personal and household effects if the items are imported within twelve months from the date of first arrival.
• incentives or exemptions available generally for start up businesses under custom laws, the Income Tax Act (Cap 340)(“ITA”) and the Value Added Tax Act (Cap 349);
• drawback of duties and sales tax payable on imported inputs used in producing goods for export as provided in the laws imposing such duties and taxes
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• A foreign investor who has been approved by UIA and who registers with the Commissioner General of Uganda Revenue Authority may also qualify as an “investment trader” and may thus be able to obtain additional incentives. An investment trader may claim input tax deduction in respect of expenditure on inputs (whether imported or locally procured) relating to the planned taxable business activities and the investment trader is entitled to a refund on the input tax on those purchases.
TAX
Income tax Resident companies and businesses are taxed on worldwide income. Non‐residents are taxed only on Uganda‐source income. A company or similar corporate entity is resident in Uganda if it is incorporated under Ugandan law; management and control of its affairs are exercised in Uganda; or the majority of its operations are carried out in Uganda during the year of income. An individual is a tax resident if domiciled in Uganda, spends at least 183 days in any 12‐month period, or is present for an average of at least 122 days during 3 consecutive tax years, or if that individual is an employee or official of the Government of Uganda posted abroad during that year of income.
Uganda’s corporate tax rate is 30% for resident companies and branches of foreign companies. The rate for mining companies ranges between 25% and 45%.
Withholding tax Withholding tax is payable on dividends, rent, natural resource payment, interest, royalties and management fees.
Capital gains tax Residents and non‐residents in respect of a Ugandan branch are liable to income tax on their chargeable gains that is, capital gains arising on disposal of their non‐depreciable asset. Those gains are included in gross income and treated as normal business income subject to income tax at the rate of 30%.
Other tax Value‐added tax (VAT) is chargeable on taxable supplies of goods and services in Uganda and the import of certain goods. The standard rate of VAT is 18%, however a zero rate applies to supplies including agricultural produce in an un‐processed state, financial and insurance services, and computer hardware and software.
Transfer pricing and thin capitalisation The Income Tax (Transfer Pricing) Regulations, 2011 apply to a controlled transaction if a person who is a party to the transaction is located in and is subject to tax in Uganda and the other person who is part to the transaction is located in or outside Uganda. “Controlled Transaction” means a transaction between associates. The Regulations require that transactions between associated persons be conducted in accordance with the arm’s length principle.
The Income Tax Act, (Cap 340) (the “ITA”) contains provisions on thin capitalization of foreign controlled resident companies. Thin capitalization arises where a company incorporated in Uganda is controlled by a non‐resident person (the “foreign controller”) and has a foreign debt to foreign equity ratio in excess of 2 to 1 at any time during a year of income. In this case, a deduction is disallowed for the interest paid by the company during that year on that part of the debt which exceeds the 2 to 1 ratio. Financial institutions are exempt from this legislation.
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Stamp duty on a transfer Stamp duty on any transfer is charged at a rate of 1% of the total value of the transfer. It is charged at nominal rates on a variety of other financial instruments and transactions.
Double tax treaty with Mauritius Uganda has a double tax treaty with Mauritius.
EXCHANGE CONTROL Foreign exchange repatriations from Uganda are not restricted. The Governor of Bank of Uganda may, however, impose such restrictions when he deems fit. There are no restrictions currently in place. All payments in foreign currency to or from Uganda between residents and non‐residents or between residents are also required to be made through a bank.
IMPORTS AND EXPORTS There are restrictions on importation and exportation of a number of commodities in Uganda, for example animal breeds and genetic material, wildlife species and specimens, importation of coffee into Uganda, petroleum, and minerals. A person dealing in any of these products shall not import or export without obtaining a licence from the prescribed authority.
ACCOUNTING PRINCIPLES Financial statements of companies must be prepared annually. Uganda applies International Financial Reporting Standards.
INDUSTRIAL RELATIONS Uganda’s Employment Act, 2006 imposes certain obligation on employers, ranging from tax obligations, insurance obligations and obligations arising out of specific labour laws. The Employment Act also details regulation regarding employment of children, discrimination, disciplinary proceedings, contract termination, working hours, severance payment and leave.
The Labour Unions Act, 2006, is intended to regulate the establishment, registration and management of labour unions in Uganda. It implements the constitutional right of employees to organise themselves in a labour union. The Act prohibits an employer from interference with the employee’s right of association in such a trade union.
The National Social Security Fund Act, (Cap 222) imposes an obligation on employers to pay a standard monthly contribution of 15% (10% being the employer’s contribution and 5% being the employee’s contribution) of the total wages of an employee to NSSF.
The pensions sector was liberalised in 2011 with the passing of the Uganda Retirements Benefits Regulatory Authority Act, 2011. This Act was enacted to remove the monopoly of NSSF as a national provident fund and allow for licensed retirement benefits schemes to operate and compete for mandatory contributions in an open market.
A person who is not a citizen Uganda intending to work in Uganda, is required under the Uganda Citizenship and Immigration Control Act, (Cap 66) to obtain a work entry permit, a certificate of permanent residence or special pass. A special pass is issued while the entry permit is being processed.
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The work permit once issued is renewed every year, with amounts varying depending on the nature of work.
REAL PROPERTY There are restrictions against the ownership of land in Uganda by non‐Ugandan citizens under the Constitution and the Land Act (Cap 227) (the “LA”). The LA prohibits non‐citizens from acquiring freehold land and mailo land. They are however permitted to acquire leases not exceeding 99 years. The LA requires a lease obtained by a non‐citizen for 3 years or more to be registered under the provisions of the Registration of Titles Act (Cap 230).
For the purposes of the LA, a “non‐citizen” means a person who is not a citizen of Uganda as defined by the Constitution and the Uganda Citizenship Act (Cap 65); in the case of a corporate body, a corporate body in which the controlling interest lies with non‐citizens; in the case of bodies where shares are not applicable, where the body’s decision making lies with non‐citizens, a company in which the shares are held in trust for non‐citizens and a company incorporated in Uganda whose articles of association do not contain a provision restricting transfer or issue of shares to non‐citizens.
“Controlling interest” means in the case of companies with shares, the majority shares are held by persons who are not citizens and in the case of companies without shares, a company in which decisions are arrived at by the majority of members who are not citizens.
CORRUPTION Uganda ranks 143rd out of 180 countries in Transparency International’s Corruption Perceptions Index for 2011. The will to combat corruption at the highest levels of government has been questioned, and bureaucratic apathy contributes to perceptions of corruption. Foreign businesses report some difficulties due to lack of transparency and possible collusion between competing business interests and government officials.
A corruption scandal at the end of 2012 involving embezzlement of donor funds led European donors to suspend aid to Uganda in protest over corruption. The countries that suspended aid to Uganda are the United Kingdom (Uganda’s biggest donor), Denmark, Norway and Ireland.
The Anti‐Corruption Act, 2009 establishes an anti‐corruption Division of the High Court specially to hear cases on corruption. In January 2013, the Anti‐Corruption Court convicted and sentenced a Member of Parliament and an ex‐Minister for embezzlement of donor funds.
COMPETITION There is currently no general law regulating competition. This area is governed by contractual arrangements between the parties.
CONSUMER PROTECTION There are existing sectoral policies, legal and regulatory frameworks in place that have measures on consumer protection. The existing sectoral policies and laws on consumer protection are under the communications, electricity, dairy, pharmaceuticals, water, broadcastings, insurance, banking and standards and safety legislations.
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LEGAL FORMS OF INCORPORATION IN UGANDA The principal forms of business arrangements in Uganda are the (public/private) limited liability company, joint venture, sole proprietorships, partnership, trust and branch of a foreign company.
The World Bank Group’s “Ease of Doing Business Report 2012” ranks Uganda 123rd out of 183 economies. On average, starting a business requires 16 different procedures. The table below provides a summary of the procedures and the associated completion time and cost for setting up a private limited company:
Procedure Time to
complete
Cost to complete
1 Reservation of a name at the CompaniesRegistry
2 days USH 25,000
2 Pay fees at the bank 1 day Included in previous procedure
3 Obtain statutory forms from the UgandaBookshop (i.e. declaration of compliance (Form A2), particulars of directors and secretary (Form 7), statement of nominal capital (Form A1) and notice of situation of registered office and registered postal address (Form A9)
1 day USH 5,600 (USH 500‐700 for each form)
4 Obtain requisition for bank pay‐in slip andbank payment advice forms from the Uganda Registration Services Bureau
1 day No charge
5 Make payment of registration fees at a given bank
1 day Bank charges (USH.2,000 – USH2,500)
6 File with the Registrar of Companies 1 day Payment is done under No. 5
7 File with the local office at the UgandaRevenue Authority a personal inquiry form for each director, and a corporate preliminary inquiry form; receive a uniform tax identification number (TID)
3 days No charge
8 Obtain corporate tax identification
Number
7 days No charge
9 Obtain VAT registration 7 days No charge
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10 An inspector from URA inspects the
business premises
1 day No charge
11 Apply for PAYE 1 day No charge
12 Obtain application forms for trading license 1 day No charge
13 The licensing officer arranges an inspection of the premises and fills out an assessment form
1 day No charge
14 Pay the license fee at the bank 1 day See the following procedure
15 Obtain the trading license 1 day License fees depend on the nature of business and its location
16 File a form with the National Social Security Fund (NSSF)
4 days No charge
17 Make a company seal 2 days USH 225,000 – USH 350,000
INDUSTRY SECTORS
Agriculture Despite their dwindling shares of Uganda’s GDP, the agriculture and fishing sectors provide approximately 80% of employment in Uganda. Uganda is Africa's second‐leading producer of coffee, which accounted for about 23% of the country's exports in 2007‐2008 and 17.9% in 2009. Exports of non‐traditional products, including apparel, hides, skins, vanilla, vegetables, fruits, cut flowers, and fish, are growing, while traditional exports such as cotton, tea, and tobacco continue to be mainstays.
Financial and banking services Uganda’s small financial system is dominated by banking, which is relatively open to competition and subject to minimal government influence. The banking sector is highly regulated by the Bank of Uganda. There are currently 24 licensed commercial banks with more than 455 branches and 637 ATMs. A majority of the banks are foreign‐owned, and account for about three‐quarters of total assets.
Other financial institutions in Uganda are credit institutions, micro‐finance deposit taking institutions, forex bureaus, money remitters, insurance companies, insurance brokers, leasing companies and development banks.
Bank lending to the private sector has gradually increased. Overall, the banking sector is well capitalized and has no serious non‐performing loan problems. Access to financial services has expanded across the country, and there is regulation in place for microfinance businesses.
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The insurance sector supervised by the Uganda Insurance Commission remains small with limited market penetration and uptake of insurance products. The state‐owned National Insurance Company Ltd has been privatized.
Capital markets are regulated by the Capital Markets Authority and remain relatively small and underdeveloped. Companies cross‐listed from the Nairobi Stock Exchange, account for the bulk of the market capitalisation on the Uganda Securities Exchange.
Manufacturing Uganda’s manufacturing output has also been expanding by more than 10% annually over the last eight years. Opportunities exist in virtually all areas, ranging from beverages, leather; tobacco based processing, paper, textiles and garments, pharmaceuticals, fabrication, ceramics, glass, fertilizers, plastic/PVC, assembly of electronic goods, hi‐tech and medical products.
Energy Uganda has a total electric capacity of 456.6 megawatts, a thermal generation capacity of 118 megawatts. There is also co‐generation using bagasse at 16 megawatts. There was an increase in the number of independent power producers which led to a 22% increase in hydro electric generation. A 250 megawatts power plant at Bujagali falls was commissioned in October 2012. With the addition of the 250 megawatts onto the national grid for consumption, power deficit is reported to have been wiped out, at least for 24 months. There is indeed been a a noticeable end to load‐shedding in most parts of the country. The Government of Uganda is also seeking investors for the construction of an additional 1,045 MW of electricity generating capacity in the next five years.
The main electricity distributor Umeme Ltd was recently listed on the Uganda Securities Exchange and also cross‐listed on the Nairobi Securities Exchange. The listing realised monies to help Umeme pay off existing debt and hopefully allow it raise cheaper commercial debt for its expansion.
Telecommunications After a moratorium on new mobile telephone operator licenses was lifted by the Government of Uganda, the telecom sector has undergone a boom. This has generated expanded coverage and telephone penetration throughout the country and prompted new competition and lower prices. The Government completed the laying of the fibre optic cable which cost USD 106. With this fibre‐optic cable, it is hoped that it will facilitate e‐Governance as well as provide access to cheap internet access across the entire country.
Tourism Uganda’s tourist industry offers many long‐term opportunities, with a number of unique tourist attractions. These include Lake Victoria, the source of the Nile, the Murchison Falls and the Mountains of the Moon, along with a number of national parks and wildlife reserves hosting, among other fauna, half the world’s mountain gorilla population.
Except for Kampala and a few major towns, however, the tourism infrastructure is underdeveloped, although the number of visitors to the country has increased sharply over the past decade.
Oil and Gas Although the hunt for oil in Uganda dates back to the 1920’s, the first commercial discovery was made in 2006. Exploration of oil in Uganda is underway. As at October 2012, 80 deep wells had been drilled in the Albertine Graben and 72 of these wells encountered hydrocarbons in subsurface.
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The Government of Uganda currently has 4 active PSAs in respect of 4 licensed exploration areas, which are all licensed to Tullow Uganda Limited, CNOOC Uganda Limited and Total E&P (Uganda) B.V.
Over 17,400 square kilometres of the Albertine Graben remain open and would be available for licensing during a licensing round which will be announced by the Government after putting in place a new regulatory framework. The Government plans to develop both a refinery, to cater for Uganda’s oil needs, and a pipeline to allow foreign investors involved in exploration and production to export the oil. According to the Minister for Energy and Mineral Development, the passing of the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Bill, 2012 (in February 2013) opened way for the refinery bidding process.
INTELLECTUAL PROPERTY Uganda’s laws for the protection of intellectual property rights include the Trademarks Act, 2010 (the “TMA”), the Copyright and Neighbouring Rights Act, 2006 (the “CNRA”) and the Patents Act (Cap 216) (the “PA”). The authority for protection of intellectual property rights is the Uganda Registration Services Bureau headed by the Registrar General of Uganda.
The TMA provides for the registration, renewal and protection of trademarks in Uganda. The TMA repealed the Trademarks Act, (Cap 217). The most significant change under the TMA is the possibility to register service marks. The definition of sign or mark was expanded to include, any word, symbol, slogan, logo, sound, smell, colour, brand label, name, signature, letter, numeral or any combination of them.
The CNRA provides for the protection of literary, scientific and artistic intellectual works and their neighbouring rights. The author of any work shall have the protection of the work, where work is original and is reduced to material form in whatever method irrespective of quality of the work or the purpose for which it is created.
The PA provides for the grant, registration and protection of patents in Uganda.
Uganda is a signatory to various World Intellectual Property Organization (WIPO) conventions including the Paris Convention for protection of industrial property, the Patent Corporation Treaty for protection of patents and the WIPO Convention to promote the protection of intellectual property throughout the world.
DISPUTE RESOLUTION ‐ ARBITRATION The Arbitration and Conciliation Act (Cap 4) (“ACA”) provides for domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and generally defines the law relating to conciliation of disputes in Uganda. Uganda is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the “Convention”). Awards under this Convention are recognized and enforceable in Uganda upon registration in the High Court of Uganda.
Under the ACA, parties are free to determine the number of arbitrators. If the parties fail to determine the number, there shall be one arbitrator. An arbitrator may be appointed by the parties or by the appointing authority. The appointing authority under the ACA is the Centre for Arbitration and Dispute Resolution (CADER) which facilitates the arbitration and mediation of commercial and other disputes.
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ZAMBIA
Capital City: Lusaka
Currency: Zambian Kwacha (ZMK)
Official languages: English
Government: Republic
President: Michael Sata
Vice‐president: George Kunda
Population: 13,881,336 ( 2011 estimate)
GDP (purchasing power parity): US$ 20.04 billion (2010
estimate)
Time Zone: GMT +2
ZAMBIA FIRM PROFILE
MUSA DUDHIA AND COMPANY
Zambia has experienced strong gross domestic product in recent years. Musa Dudhia and Company is at the forefront of legal service provision for investors looking to operate in this increasingly welcoming business environment.
Founded in 1958, Musa Dudhia and Company is one of the most established law firms in Zambia and thrives on the diversity of its partners; expertise.
International directories recognise Musa Dudhia and Company as the firm of choice for major client seeking skilled domestic representation. The firm’s extensive client base includes public and private companies, investment and retail banks, international financial institutions and private equity providers.
The team is committed to maintaining a strong culture of entrepreneurship and client focus. Chambers Global consistently ranks Musa Dudhia and Company as a leading law firm in its jurisdiction.
“The group provides a personalised, professional service. I appreciate the manner in which the lawyers will rally together, as a team, to meet deadlines” – Chambers Global 2013
Contact Information:
A: 3rd Floor, Mpile Office Park
74 Independence Avenue
P: P.O. Box 31198, Lusaka, Zambia
T: +260 211 253822
F: +260 211 253827
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ZAMBIA COUNTRY PROFILE
INTRODUCTION Zambia is a landlocked country in south‐central Africa with an area of 285,994sq mi (740, 724 sq km) and is strategically surrounded by eight neighbouring Countries; Malawi, Zimbabwe, Tanzania, Botswana, Namibia, Angola, Congo DR, and Mozambique.
It is a sovereign, unitary, multi‐party democracy and provides a market oriented liberalised economic environment. Zambia has a population of approximately 13,817,479 million and a growth rate of about 1.6% in 2012.
The country is highly endowed with natural resources such as copper, waters, good soils, labour, game and land. Furthermore, it has experienced continuous political stability since attaining independence in 1964.
The Republic of Zambia has a liberalised economy which embraces and welcomes all investors and has designed a package of incentives aimed specifically at creating a sound investment climate for increased domestic economic growth. Factors such as abolition of controls‐price, interest rate, foreign exchange and free repatriation of earning, security to investors with statutory rights to full and fair compensation and repayments provide a suitable environment for investment in the Country.
Zambia also provides duty free access to regional, wider African and the USA markets under SADC, COMESA/FTA, AGOA, (Africa Growth and Opportunity Act), and the Cotonou Agreements respectively.
Its attractive sub‐tropical climate and vegetation with plenty of water and electricity and friendly people who are mostly English speaking with high literacy rates act as a bonus to both foreign and local investors.
THE LEGAL SYSTEM
Overview The Republic of Zambia has a dual legal system made up of general or statutory law as well as the tribe specific customary laws. The general law is based on the English Common law system whilst the customary law is based on the various norms and cultures of the different tribes in Zambia.
The Zambian legal system has thus developed in such a way that customary law is administered by special courts called Local Courts and can be set aside if such customs contradict the written law or offends English principles of justice, good conscience and equity.
The importance of the dual legal system is that it creates two standards of justice applicable side by side with regard to the same population.
Sources of law The power to make laws is vested in the Parliament of Zambia. The sources of law in Zambia include the following listed in order of importance to the legal system;
• The Constitution of Zambia • Acts of Parliament • Subsidiary legislation
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• Judicial decisions • English Common Law, Equity and Statutes • Customary law
As mentioned above, the law in Zambia is principally based on the English common law system. The English Law (Extent of Application) Act as amended by Act No 6 of 2011 sets out the extent to which English law is applicable to Zambia. The Act provides that English principles of common law, equity and English statutes enacted before 1911 as well as the Supreme Court Practice Rules of England in force until 1999 are all applicable in Zambia provided that they are applied in conformity with the Zambian written laws.
With regards to commercial activities in Zambia, it is the local statutes that take priority. For instance, there are Zambian statutes governing, among other matters, Companies, Mining, Banking and Insurance Business, Agriculture, Land Law, Taxation, Local Government, Shipping, Competition Law and Intellectual Property. Principles of English Common law are only relied upon when there exists a lacuna or gap in the Zambian law.
Unfortunately, Zambia does not have a highly developed case law system; as such it is very difficult to be certain as to whether or not there is a specific Zambian authority on a particular point. Where there is no local judicial authority, the Zambian courts may consider case law from other jurisdictions, including England and other Commonwealth countries which follow the English common law like Kenya, Uganda, India and Australia. As a matter of practice, English case law and cases from other Commonwealth countries are often cited in court proceedings although they only play a persuasive function and are not binding on the Courts. It must be noted however that when dealing with a Zambian law matter, one is advised as much as possible obtain Zambian authorities in support of the claim.
THE ZAMBIAN JUDICIARY The Zambian judiciary is created under the Constitution of Zambia. The Judicature of the Republic consists of the Supreme Court of Zambia; the High Court for Zambia; the Industrial Relations Court; the Subordinate Courts; the Local Courts; and such lower Courts as may be prescribed by an Act of Parliament.
The High Court for Zambia has original and unlimited jurisdiction over all claims except from cases specifically reserved for the Industrial Relations Court. It is also an appellate court.
The Industrial Relations Court is specifically reserved for matters arising out of any labour and industrial matter such as trade union actions, or employment law matters. An appeal from the Industrial Relations Court lies to the Supreme Court.
The Supreme Court of Zambia has appellate jurisdiction only (except in matters involving presidential petitions) and is the highest court in Zambia. Appeals from the decisions of the High Court lie in the Supreme Court.
The lower courts consist of the magistrate's courts. An appeal from a decision of the magistrate’s court lies with the High Court with a final appeal to the Supreme Court. There are also various tribunals such as the Lands Tribunal, the Town and Country Planning Tribunal, and the Revenue Appeals established under various statutes to deal with specific matters and whose decisions may or may not be subject to appeal. Judgments of the superior courts of record (the High Court of Zambia and the Supreme Court are binding on the subordinate courts).
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Commercial Courts By Statutory Instrument no 29 of 1999, the Commercial Court was created. This court is a division of the High Court which is meant to deal with actions arising out of commercial transactions alone. All commercial matters are registered in the Commercial Registry. The Commercial Registry is advantageous as it is a very quick way of dealing with commercial disputes. Furthermore, the judges dealing with the matters in the Court are experienced in commercial law. Appeals from the Commercial Court lie in the Supreme Court.
ALTERNATE DISPUTE RESOLUTION
Arbitration Arbitration in Zambia is governed by the Arbitration Act No 19 of 2000 which repealed the 1933 Arbitration Act. The Act has taken a number of strides towards adopting and incorporating several international legal instruments into its own municipal laws on arbitration. The Act, for example provides for, inter alia, the following:
The Arbitration Act grants substantial leeway to the parties to determine the manner in which they wish the arbitration to be conducted. The parties are free to agree on the number of arbitrators
According to the Act, disputes in respect of the following matters shall not be capable of determination by arbitration: an agreement that is contrary to public policy; a dispute which, in terms of any law, may not be determined by arbitration; a criminal matter; a matrimonial cause; matters incidental to a matrimonial causes, the determination of paternity, maternity or parentage of person; or matters affecting the interests of a minor or an individual under a legal incapacity.
Zambia is also a member State to the treaties establishing international bodies and forums that deal with Alternative Dispute Resolution. One such body wherein Zambia is a member State is the International Centre for the Settlement of Investment Disputes or ICSID.
The Zambia Centre for Arbitration, Conciliation and Mediation is an example of an organisation that deals with arbitration in Zambia.
Mediation In Zambia, parties or the Court in certain instances may submit a dispute to mediation. Mediation in Zambia involves a third party, neutral, whether one person or more, acts as a facilitator to assist in resolving a dispute between two or more parties. The mediator assists the disputing parties in communicating their positions and exploring possible solutions or settlements.
PROMOTION AND REGULATION OF FOREIGN INVESTMENT
OVERVIEW Zambia has now opened the doors for foreign investment both in terms of Foreign Direct Investment and Portfolio Investment. In line with the economic reforms, Zambia is encouraging private investment in all major productive sectors including agriculture, mining, manufacturing, tourism and energy. It has introduced new economic policy measures, liberalised open market trade and investment conditions. Export processing zones have been established and applications for zoning are being encouraged. Zambia also has opportunities for investment in the agro‐industry (horti‐floriculture, tobacco‐processing, cotton‐ginning, crop production for the processing industries); in industry (consumer goods); in tourism (quality
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holiday accommodation, managed safaris, licensed hunting safaris and organised holidays in white‐water rafting and other adventure adrenaline sports).
Investment Promotion Under the Zambia Development Agency Act In a bid to encourage investment in Zambia, the Parliament has enacted a number of statutes that are meant to facilitate and promote investment within the Zambian economy. The primary legislation for investment in Zambia is the Zambia Development Agency Act no 6 of 2006(“ZDA Act”).
The ZDA Act defines an “investment” as contribution of capital, in cash or in kind by an investor to a new business enterprise to the expansion or rehabilitation of an existing business enterprise or to the purchase of an existing business enterprise from the State.
Under the ZDA Act, a “foreign investor” is defined as a person who makes direct investment in the country and who in the case of a natural person is not a citizen or permanent resident of Zambia and in the case of a company is incorporated outside Zambia.
A “local investor” is defined under the ZDA Act as local investor a person who makes direct investment in the country and who in the case of a natural person is a citizen or permanent resident and in the case of a company is incorporated in Zambia.
There is a requirement under the Act for any person wishing to develop premises as a multi‐facility economic zone (“MFEZ”), export prescribed goods and services, invest in any business enterprise, register a micro or small business enterprise, education enterprise, skills training enterprise or rural business enterprise, or operate a business enterprise in a multi‐facility economic zone, to apply in the prescribed manner, to the Agency for approval of such undertaking either by way of licence, permit or certificate of registration.
In deciding whether to issue an investment certificate the Authority is required to have regard to the following issues:
• the need to promote economic development and growth in Zambia; • the extent to which the proposed investment will lead to the creation of employment
opportunities and the development of human resources; • the degree to which the project is export oriented; and • the impact the proposed investment is likely to have on the environment and, where necessary,
the measures proposed to deal with an adverse environmental consequence in accordance with the Environmental Protection and Pollution Control Act.
Incentives Available to Foreign Investors In a bid to promote investment in Zambia, the ZDA Act provides for a number of substantial incentives available to both local and foreign investors. These incentives are valid for a period of five years from the time the licence or permit is granted by the Agency.
The first form of incentive given under the Act involves taxation. Here, an investor who invests not less than five hundred thousand United States Dollars (US$ 500,000) or the equivalent in convertible currency, in a priority sector or product, is entitled to incentives as specified by or under the Income Tax Act, chapter 323 of the Laws of Zambia or the Customs and Excise Act, Chapter 322 of the Laws of Zambia
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Furthermore, any machinery or equipment acquired by a business enterprise conducting operations in a priority sector, priority products, or a rural enterprise will be entitled to be exempted from customs duties as specified by the Customer and Excise Act.
Where a major investment occurs, the Minister responsible for Finance in the Republic of Zambia may specify additional incentives for investment in an identified sector or product of not less than ten million United States Dollars (US$10,000.000) or the equivalent in convertible currency, in new assets that qualify for those incentives.
Protection from compulsory acquisition of property. The ZDA Act also contains provisions which seek to not only promote foreign investment, but protection of investors as well, this is especially true in matters involving an investor’s property. The Act states that an investor’s property will not be compulsorily acquired nor shall any interest in or right over such property are compulsorily acquired. However, in instances where there is a public purpose related to the acquisition, compulsory acquisition may be allowed provided that payment of compensation for such acquisition is made to the investor. This compensation must be made promptly at the market value and shall be fully transferable at the applicable, exchange rate in the currency in which the investment was originally made, without deductions for taxes, levies and other duties, except where those are due.
Foreign Ownership of Land All land in Zambia vests in the President absolutely for and on behalf of the people of Zambia. The President may thus alienate land vested in him to any Zambian. When it comes to foreigners, the Lands Act, Chapter 184 (“Lands Act”) of the Laws of Zambia, places a number of restrictions to the allocation of land to foreigners by the President of the Republic.
The Lands Act states that land may only be allocated to a non‐Zambian in the following circumstances:
• where the non‐Zambian is a permanent resident in the Republic of Zambia; • where the non‐Zambian is an investor • where the non‐Zambian has obtained the President's consent in writing under his hand; • where the non‐Zambian is a company registered under the Companies Act, and less than 25% of
the issued shares are owned by non‐Zambians • where the non‐Zambian is a statutory corporation created by an Act of Parliament; • where the non‐Zambian is a co‐operative society registered under the Co‐operative Societies Act
and less than 25 percent of the members are non‐Zambians; • where the non‐Zambian is a body registered under the Land (Perpetual Succession) Act and is a
non‐profit making, charitable, religious, educational or philanthropic organisation or institution • where the interest or right in question arises out of a lease, sub‐lease, or under‐lease, for a
period not exceeding 5 years, or a tenancy agreement; • where the interest or right in land is being inherited upon death or is being transferred under a
right of survivorship or by operation of law; • where the non‐Zambian is a Commercial Bank registered under the Companies Act and the
Banking and Financial Services Act • where the non‐Zambian is granted a concession or right under the National Parks and Wildlife
Act.
The ZDA Act also makes provision for the ownership of land by investors. The Agency in consultation with the Ministry responsible for land is empowered to assist an investor in identifying suitable land for
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investment, as well as assist that investor to apply to the responsible authorities for land, in accordance with established procedures.
Conversion and transfer policies Investors are free to repatriate capital investments as well as dividends, management fees, interest, profit, technical fees, and royalties. Foreign nationals can also transfer and/or remit wages earned in Zambia without difficulty. There is no exchange control in Zambia for anyone doing business as either a resident or non‐resident. Additionally, there are no restrictions on non‐cash transactions. Over‐the‐counter cash conversion of the local currency, the kwacha, into foreign currency is restricted to a USD 5,000 maximum per transaction for account holders and USD 1,000 for non‐account holders.
BUSINESS ORGANIZATIONS The principal forms of business arrangements in Zambia are:
• sole proprietorships; • partnerships; • companies. • cooperative societies
We consider these in turn below.
Registration of sole proprietorships In an instance where a person wants to register his business, the provisions of the Registration of Business Names Act No 16 of 2011 will apply. According to the Act, a sole proprietorship must be registered where the name of the business is not the true surname or Christian name of the firm.
According to the Act, whenever a change is made to any of the particulars registered in respect of any person or firm, the person or firm required to notify the Registrar of business names of such changes.
The Registrar of business names is empowered to register a business under the Act. He is also empowered to decline to register as a business any name, any name which is in his opinion of the Registrar is undesirable.
Partnerships The Zambian law recognizes partnerships as a form of business associations. Zambian law which governs partnerships is the English Partnership Act of 1890 which is applicable to Zambia by virtue of the English Law (Extent of Application) Act, chapter 11 of the Laws of Zambia. The statutory law contained in the Partnerships Act has been supplemented and interpreted by judicial decisions and general principals of common law.
Under the Partnership Act, a partnership is defined as a relationship which subsists between persons carrying on business in common with a view of profit.
The Companies Act of Zambia prohibits the formation of an association or partnership consisting of 20 or more persons where such association or partnership is not a body corporate. This provision however does not apply to a partnership formed for the purpose of carrying on a prescribed profession or calling.
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Companies Companies in Zambia are regulated under the Companies Act, Chapter 388 of the Laws of Zambia (“Companies Act”). A “company” in under the Companies Act is defined as a company incorporated under the Companies Act.
There are various types of companies that can be formed in Zambia; this includes a company limited by shares, a company limited by guarantee and an unlimited company. In practice however, unlimited companies are rarely formed in Zambia.
Furthermore, a company in Zambia can be classified either as a private company or a public company. A "private company" means a private company limited by shares, a company limited by guarantee or an unlimited company. On the other hand, a "public company" means a company incorporated as such, being a company satisfying section fourteen of the Companies Act.
In terms of company incorporation, any two or more persons associated for any purpose may form an incorporated company by subscribing their names to an application for incorporation that satisfies provisions of the Act and lodging it with the Registrar of Companies, together with the following documents:
• any proposed Articles of the company; • a statutory declaration; • a signed consent from each person named in the application as a director or secretary of the
company; • a declaration of guarantee by each subscriber, if the company is to be limited guarantee.
Limited liability Company A limited company according to the Companies Act means a company limited by shares or a company limited by guarantee. The advantages of a limited liability company include:
• It can undertake a wide range of activities as stipulated in its Memorandum of Association; • it has a distinct and separate legal personality apart from its shareholders; • the liability of the shareholders is limited; and • the business is not dissolved upon the death of one of the shareholders.
The disadvantages of a limited liability company are include:
• companies are closely regulated by statute; and
Although the company is a separate legal entity, there are circumstances in which the “corporate veil” may be lifted. Even though a company is generally managed by its board of directors, one director could by his actions bind the company and bona fide third parties could rely on the apparent authority of a director to bind the company. it is advisable for a shareholders’ agreement to be drafted in which issues relating to control over the affairs of company and decision making in the company can be addressed.
Limited liability companies are the most popular form of investment vehicles in Zambia and we discuss the formation and governance of limited liability companies in greater detail in the section below.
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Cooperative Societies A cooperative society is a form of business association which is usually undertaken by communities trying to achieve social, economic and cultural needs while members maintain democratic control.
The Cooperative Societies Act no 20 of 2000 “Cooperatives society Act” is the primary legislation governing cooperative societies in Zambia. It defines a cooperative society as any enterprise or organization owned collectively by its members and managed for joint social, economic benefit and whose activities are not prohibited by law.
Registration and organisation of cooperative societies They are formed by way of application in a prescribed form to the Registrar of societies. Ten or more people wishing to form cooperative societies must apply to the Registrar.
The application must be accompanied with four copies of the by‐laws of the cooperative society, a statement by applicants that the capital to be furnished initially by applicants on is sufficient for commencement of operations. Notice of situation registered office also must be registered.
Cooperative societies which can be under the Cooperatives Societies Act The Act does not set out what type of cooperative society that could be registered under it. The Act however, gives the impression that only one type of cooperative could be formed under the Act, namely; a Private Cooperative Limited. The cooperatives may be limited by shares. A cooperative limited by shares is one which the liability of the members (shareholders) is limited to the amount unpaid for the shares.
SPECIFIC SECTOR INVESTMENT
OVERVIEW The Government actively supports, facilitates, and rewards new companies in all sectors of enterprise and this support is equally available to indigenous and foreign‐based companies without any discrimination whatsoever against offshore companies. Large and small enterprises are equally welcome. The ZDA Act guarantees foreign investment against compulsory acquisition or nationalization without compensation. Time‐wasting procedures that may confront foreign investors elsewhere have been greatly eliminated in Zambia and legal requirements have been reduced to an absolute minimum. Streamlined processing of paperwork and rapid decisions, guided by the Investment Centre, greatly facilitate all aspects of importation of equipment and export of products. Prime growth sectors for investment are manufacturing, agriculture and agro‐processing, tourism, and mining. others offering potential investment opportunities include construction, transportation, energy, telecommunication and it services
THE MINING SECTOR
Overview Zambia has enormous reserves of copper‐cobalt ore and the country is the fourth largest producer of copper metal. gold, nickel, lead‐zinc, iron and manganese are also mined. in addition Zambia is endowed with very high quality of gemstones ‐ emerald, amethyst, aquamarine, rubies, garnets, and diamonds ‐ which are still unexploited. with the privatisation of the mining sector, potential opportunities have become very attractive.
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Mining Legislation The primary law governing the mining sector in Zambia is the Mines and Minerals development Act of 2008 (“Mines Act”). The Mines Act provides for mining rights, mining licences, large scale mining in Zambia, Gemstone mining, safety, health and environmental protection, geological services and analysis, royalties and charges as well as administration of the mining sector in Zambia.
The Mines Act defines “mining” to mean the extraction of material, whether sold, liquid or gaseous, from land or from beneath the surface of the earth in order to win minerals.
All rights of ownership in, searching for, mining and disposing of, minerals in Zambia are vested in the President on behalf of the Republic.
Mining Rights and Licenses There is a strict requirement that a person shall not prospect for minerals or carry on mining operations or mineral processing operations without the authority of a mining right or mineral processing licence granted under the Mines Act.
A number of mining rights can be granted under the Mines Act in Zambia. These are:
• a prospecting licence; • a large‐scale mining licence; • a large‐scale gemstone licence; • a prospecting permit; • a small‐scale mining licence; • a small‐scale gemstone licence; and • an artisan’s mining right.
Further two kinds of non‐mining rights may be granted in Zambia; a mineral processing licence and a gemstone sales certificate.
A mining right or non‐mining right cannot be granted to any person except in accordance with the provisions of the Mines Act.
Mining rights or non‐mining rights are prohibited from being granted to, in the case of an individual‐ an individual who:
• is under the age of eighteen years; • is or becomes an undercharged bankrupt; and • has been convicted, within the previous ten years, of an offence involving fraud or dishonesty, or
of any offence under the Act or any other law within or outside Zambia.
And in the case of a company‐ a company:
• which is in liquidation, other than liquidation which forms part of a scheme for the reconstruction of the company or for its amalgamation with another company;
• unless the company is incorporated under the Companies Act; • which has not established an office in Zambia; or • A prospecting permit, small‐scale mining licence, small‐scale gemstone licence and an artisan’s
mining rights cannot be granted to a person who is not a citizen of Zambia or a company which is not a citizen‐owned company.
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Preference for Zambian Products It appears that to promote economic growth and empowerment, the Act offers preferential treatment to Zambian products, materials and service agencies owned by Zambian citizens in the conduct of operations under the mining right or mineral processing licence, and in the purchase, construction and installation of facilities, give preference, to the maximum extent possible. Additionally a licence or right holder is expected to give preference in employment to citizens of Zambia to the maximum extent possible.
Royalties on production of minerals There is a requirement for licence holders to pay royalties under the Mines Act. The Act states that a holder of a large‐scale mining licence, large‐scale gemstone licence, small‐scale mining licence, small‐scale gemstone licence or an artisan’s mining right must pay a mineral royalty.
There is also a requirement for persons who hold licences under the Act to pay annual charges to the Republic of Zambia. The amount varies and is calculated in a manner prescribed by a statutory instrument issued by the minister of mines and mineral development
Duration and Tenure Large‐scale and small‐scale mining licenses are granted for a term not exceeding twenty‐five years and ten years respectively, and are renewable for further terms. Holders of mining licenses are further required to obtain an operating permit annually in order to conduct mining operations.
The director of mines may reject an application for renewal on any of the following grounds:
• the development of the mining area has not proceeded with reasonable diligence (provided that the applicant has failed to remedy the default within three months of notification from the director);
• minerals in workable quantities do not remain to be produced in the mining area (provided that the applicant has been accorded an opportunity to make written representations thereon to the director);
• the programme of the intended mining operations would not ensure the proper conservation and use in the national interest of the mineral resources in the mining area (provided that the applicant has failed to propose amendments to the proposed programme of mining operations within three months of notification from the director); or the applicant is in breach of any condition; and
• the applicant is in breach of any condition of its license or the Mines Act
Tax stability agreements Prior to the commencement of the Mines Act investors were able to enter into development agreements with the Government under which concessions where provided for generally in the form of suspension or reduction of all main taxes and tax stability periods.
Following the enactment of the Mines and Minerals Development Act No 7 of 2008, however, the development agreements were outlawed and the Minister of Mines and Minerals Development could no longer enter into any agreement relating to the grant of a large scale mining licence or any other mining right. Further the Mines Act now provides that existing development agreements ceased to bind the Republic.
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THE TELECOMMUNICATIONS SECTOR
OVERVIEW There have been major developments in the information, technology and communication sector in Zambia. The number of subscribers for mobile telephones has increased remarkably. Also, the number of Internet Service providers has greatly increased. However, the telecommunications sector has potential for more growth.
Information and Communications Technology Act No 15 of 2009 (“ICT Act”) The ICT Act is basically intended to regulate the provision of telecommunication services to, from and within Zambia. This regulation is achieved by the Zambia Information and Communications Technology Authority (“ZICTA”), formerly called the Communications Authority. ZICTA is a body corporate with a common seal, and capable of suing and being sued. The Act is intended to provide for the regulation of information and communication technology. It also facilitates the access to information and communication technologies. Finally the ICT Act protects the rights and interest of service providers and consumers.
The telecommunications sector in Zambia falls under the Ministry of Information and Communications. The sector is primarily governed by the ICT Act.
Licenses ZICTA is empowered to issue a network licence, to allow the holder to construct, own or make available an electronic communications network, or to provide a network service; and a service licence, to allow the holder thereof to provide one or more electronic communications services.
There are two classes of licences that can be issued by ZICTA; an individual license and a class license.
The transference of a licence under by a licensee is allowed as long as the consent of the ZICTA is obtained.
In 2010, an Amendment to the ICT Act was made with regards to tariffs for services offered by the licensee holding a dominant position in the sector. Basically the Act states that a licensee that holds a dominant position in a retail electronic communications market must submit to ZICTA in the prescribed manner and form, the tariffs the licensee intends to charge, including the justification for such prices, prior to the introduction of the tariffs.
ZICTA is then required to approve or reject such application within 14 days of the receipt of the application.
RECENT CHANGES IN TELECOMMUNICATIONS LAWS
Electronic Communication and Transaction Act No 21 of 2009 (“ECT”) The Zambian legislature in 2009 enacted the ECT Act in order to develop a safe, secure and effective environment for consumers, the business sector and the Government to conduct and use electronic communications.
More importantly, the ECT Act creates legal certainty and confidence, and encourages investment and innovation, in the electronic communications industry it by placing a number of legal rules and requirements that must be met in matters that relate to electronic communications and transactions. It also facilitates the creation of secure communication systems and networks, establish the Central Monitoring and Coordination Centre (CMCC).
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Licensing procedure A person intending to operate a network or provide a service under the ICT Act is required to apply for an individual licence or a class licence in the prescribed manner upon payment of the prescribed fee.
After the application is made, ZICTA is supposed to, within 60 days of receipt of an application, grant or reject the application.
Where ZICTA fails to make a decision within sixty days, the application shall be deemed to have been granted.
Where ZICTA rejects an application for a licence, it is required to inform the applicant accordingly and give the reasons why it refused to grant the application.
ZICTA may request for further particulars or information when considering an application
If ZICTA is satisfied that the application is within the requirements of the ICT Act, and that the applicant is financially and technically capable of meeting the applicant’s obligation and the terms and conditions of the licence, it must issue the licence applied for.
THE AGRICULTURAL SECTOR
OVERVIEW In the Fifth National Development Plan, agriculture remains the key priority in the growth and poverty reduction programme of Zambia. The government has been implementing institutional reforms aimed at liberalizing the agricultural markets and encouraging the private sector to take the lead in agricultural sector development. Under these institutional reforms, government’s focus is on providing public goods that are needed for efficient sector growth, such as rural infrastructure, research, extension, and pest and disease control. Agri‐business is also being encouraged to strengthen linkages with smallholder farmers through increased private sector participation in agricultural service delivery, such as in input supply, output marketing, and agro‐processing.
Regimes in Zambia Ownership of agricultural land will depend on the particular land registration regime. The most common regimes governing land transactions in Zambia are the Lands Act chapter 184 of the laws of Zambia, the Lands and Deeds Registry Act chapter 185 of the Laws of Zambia, the Lands (Perpetual Succession) Act chapter 186 of the Laws of Zambia, and the Agricultural Lands Act chapter 187 of the Laws of Zambia, and the Lands Survey Act chapter 188 of the Laws of Zambia.
Ownership of land and dealings in agricultural land are restricted. As discussed above, the Lands Act prohibits ownership of land by a foreigner unless the foreigner falls within the listed exceptions outlined in the Act. One Such exception relates to foreign investors. Basically, the Lands Act allows a foreigner to own land if such foreigner is an investor.
Regulation of agricultural investment There are numerous statutes dealing with the regulation of agricultural investment. Regulation will depend on the particular agricultural activity the investor undertakes.
Generally, any person engaged in any agricultural practice is required to do so in conformity with the Agricultural Lands Act chapter 187 of the laws of Zambia (“Agriculture Act”) and other agriculture laws.
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The Agriculture Act The Act is intended to provide for the establishment of the Agricultural Lands Board (“ALB”) as well as to prescribe the composition, membership and its powers and functions. Further it provides the Agriculture Act provides for the ALB’s tenant farming schemes.
The functions of Agricultural Lands Board (ALB) include:
• keeping under review the use that is being made by the president of state land outside urban and peri‐urban areas and to make such recommendations to the minister thereon as it may deem fit;
• to carry out such other duties in relation to the alienation of state land outside urban and peri‐urban areas as the minister may place upon the board; and
• to keep under review the general operation of the act.
Persons who seek to be allotted agriculture holding must apply to the ALB. ALB is however prohibited from approving any application for a holding made on behalf of a limited company unless such a company:
• is incorporated under any law applicable to Zambia relating to companies; • undertakes that it will occupy the holding through the agency of a manager to be approved by
ALB, who will himself reside on the holding and develop and beneficially occupy it to the satisfaction of ALB;
• is legally competent to hold and farm land within Zambia; and • Possesses or is able to raise capital which, in the opinion of the Board, is sufficient to ensure the
beneficial occupation of the holding.
REAL ESTATE
OVERVIEW There is currently a property boom in Zambia. More and more people are looking to buy or rent property and the demand for apartments and houses has grown exponentially.
Laws and regulations Property developers have to adhere to the following laws and regulations:
• The applicable land statutes • The Environmental Management Act No 12 of 2011; • The Town and Country Planning Act; and • The Local Government Act and the regulation made thereunder. Every local authority has power
to make bye‐laws. Various bye‐laws have been promulgated that regulate property development.
BUYING PROPERTY IN ZAMBIA
OVERVIEW The system of land registration which Zambia adheres to involve a system of land registration where every piece of land is reflected on a diagram (called a survey diagram) and the ownership recorded in the Deeds Registry at the Ministry of Lands where documents are available for public viewing. Zambia deeds registration systems have since improved with investment in technology an exceptional degree of
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accuracy and security of tenure being guaranteed. Property can be owned individually, jointly in undivided shares, or by an entity such as a Company, close corporation or trust or similar entity registered outside Zambia.
Transfer procedure The registration of a property transaction is handled by a specially qualified legal practitioner known as a ‘conveyancer’ to attend to the registration of transfer of a property sold.
The first step to be taken is to ensure that an official search is carried out in respect of the property at the relevant lands registry. The search results will often show whether the title document relating to the property is valid, provide details of the registered owner, indicate whether there are any encumbrances registered against the land and set out other special conditions to which the property is subject. Encumbrances would include charges securing bank loans.
A prospective purchaser should also engage the services of a qualified surveyor to conduct a survey over the property. A surveyor should amongst other things, confirm whether the beacons demarcating the land are in order and whether the Deed Plan relating to the land corresponds with the actual area of the property on the ground.
It is also crucial to confirm the permitted and actual user of the land and whether the use of the land is restricted by statutes.
Equally important is to ensure that there is an unrestricted right of access to and from the property (that is, there is a public road that serves the property). In addition, the purchaser should confirm that there are no squatters or other persons in occupation of the property who are unlikely to vacate on completion of the sale, that there are no encroachments on the property and that the property does not encroach on any other properties or on public land or road reserve.
The leasehold term is usually 99 years. In the case of a leasehold property, it is important to consider the term remaining on the lease. Buyers should be aware that there is no guarantee that the Government will agree to renew the term upon its expiry or even if they do there is no law that regulates how much of a premium the Government would charge.
One should also ensure that the land rent and rates have been fully paid prior to the transfer and clearance certificates issued by the relevant local authority.
Title documents in respect of leasehold properties would also normally indicate the permitted user of the land. This refers to the uses to which the land may be put. For instance, the title document may indicate that the permitted user of the land is “residential”. If the purchaser intends to use it for commercial purposes, it would be prudent to apply for a “change of user” prior to purchasing the property.
Usually, leases in Zambia contain a development covenant and it is important to ensure that this has been complied with this covenant. Breach of this condition entitles the government to re‐enter the property and revoke the title in which case the land reverts back to the Government and usually the title contain a condition prohibiting transfers until the development condition has been fulfilled.
When one is dealing with agricultural land, it is also necessary to obtain the consent of the relevant ALB without which the relevant transaction is void.
It is advisable to enter into a written agreement in relation to the sale. A properly drawn agreement should set out clearly all the terms and conditions agreed between the parties and in the unfortunate
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event of a dispute between the seller and the purchaser, the parties can rely on the written agreement. Such an agreement would also limit the likelihood of one of the parties rescinding the transaction at will, to the detriment of the innocent party. Further, documentation pertaining to the registration of the property is required to be signed and must be authenticated if it is signed outside Zambia. This is sometimes inconvenient and it is possible, and often advisable, to leave a general power of attorney in favour of trusted person in Zambia to assist in this regard.
Once all these formalities have been complied with, completion of the transaction would take place 30 or 60 days after the signing of the agreement. This would involve the exchange between the seller and the purchaser (or their respective advocates) of all the documents required to transfer ownership to the purchaser in exchange for the purchase price.
It should be noted that each land transaction is unique and the summary above is a general overview. There are many cases of fraudulent title deeds and multiple title deeds for the same property. Much caution is therefore required when acquiring land in Zambia and it is important that experienced and reputable lawyers and surveyors are used.
THE ENERGY SECTOR
OVERVIEW Zambia has abundance of energy resources. The most important source of energy is electricity, which is generated by three major hydroelectric power stations. Other endowments in Zambia’s energy sector include coal, woodlands and forests as well as other renewable energy forms such as solar and wind. Zambia has as estimated hydropower capacity of 6,000MW, of which only about 1,640 MW has so far been installed. This represents only 30 percent of the total capacity. Hydroelectric plants account for 92 percent of the total installed capacity and 99 percent of the total electricity generated in the country. So far there are only two important inter‐connectors to Zimbabwe and the Democratic Republic of Congo (DRC) which are the most important electricity export grids.
With the liberalisation of the economy, government has amended legislation affecting generation, transmission, distribution and supply of electricity thus allowing private sector entry. Potential opportunities identified are Kafue gorge lower hydroelectric project, Itezhi‐tezhi Hydroelectric Project, Zambia‐Tanzania Interconnector and Zambia‐Namibia Interconnector. Exploration potential for hydrocarbons (oil and gas) is one area that has not been tapped fully ‐ hydrocarbon source rocks are proven and are preserved in all basinal areas of Zambia. Government welcomes active participation from prospective investors with modern technological expertise.
The Energy Regulation Act Chapter 436 of the Laws of Zambia (“Energy Act”) The statute that governs the energy sector in Zambia is the Energy Act. The Energy Act is intended to establish an Energy Regulation Board (“ERB”) and to define its functions and powers as well as to provide for the licensing of undertakings for the production of energy or the production or handling of certain fuels.
Licensing The Energy Act provides that a person shall not establish or operate an undertaking except under the authority of a licence issued under this Act by the Board. This means any undertaking that desires to conduct any activities involving the production or of energy will require a licence to do so.
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Change of Control A licensee or permit holder may with the consent of the ERB, transfer his license under the Energy Act to a third party. The Energy Act imposes an obligation on petroleum and electric energy licensees to obtain the consent of the ERB in order to transfer any rights, powers or obligation conferred or imposed upon the licensee by the license to a third party. ERB has authority to withhold consent to an application to transfer a license if it has reason to believe that the public interest is likely to be prejudiced by the transfer of a petroleum or electrical energy license to any proposed third party.
A transfer of license has been defined to mean any sale, lease mortgage, charge or other assignment, demise or encumbrance
Compulsory acquisition of land under the Electricity Act The Electricity Act, chapter 488 of the laws of Zambia (“Electricity Act”) empowers the President to authorize the acquisition, by compulsion, of land as may considered necessary for any purpose associated with the generation, transmission, distribution or supply of electricity by an operator of any undertaking.
Before making the above, the President must be satisfied that the operator concerned has taken all reasonable steps to acquire the land intended to be used on reasonable terms by agreement with the owner of the land and has been unable to do so; and that the acquisition of such land is necessary for the purposes of the undertaking carried on by the operator concerned.
The President may permit the use by the operator of any undertaking of any land which the President has acquired. This is provided that the land shall not be used by that operator for any purpose other than the purpose for which it was acquired for, and further, that the land will revert to the use and absolute control of the President if it or any part of it is not used for any purpose for which it was acquired.
THE TOURISM SECTOR
OVERVIEW The tourism sector is one of the most thriving and vibrant sectors in Zambia. Potential of Zambia as one‐stop destination offers excellent prospects for advancement of this highly under‐developed sector. With 19 national parks, 23 game management areas, the largest water fall in the world, and 23 million hectares devoted to the conservation of a spectacular variety of animals, the scope for an integrated quality tourism related investment is very attractive. wildlife such as elephant, leopard, lion, cheetah, rhinoceros, zebra, giraffe, hippopotamus, crocodile, buffalo, impala, antelope, baboon and a host of smaller creatures as well as over 700 species of birds can be seen. Opportunities to promote adventure holidays ‐white‐water rafting, canoeing, rock‐climbing, hand‐gliding, fishing, bungi‐jumping at Victoria Falls including its unique walking safaris offer excellent tourism potential.
An investor wishing to set up a business relating to tourism has the option of setting up hotels, restaurants and tours and travel agencies
Tourism Act The tourism industry in Zambia is regulated by the Tourism and Hospitality Act No. 23 of 2007 of the laws of Zambia (“Tourism and Hospitality Act”). The Act is intended to inter alia provide for the development of the tourism industry; to provide for incentives for investors in the tourism industry; to provide for the control and regulation of hotels and the enforcement of reasonable standards of cleanliness, sanitation and service; to provide for the authorisation and licensing of tourism enterprises and to provide for the constitution of the hotel managers registration council.
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Requirement for authorisation and licence to operate tourism enterprise Section 15(1) of the Tourism and Hospitality Act prohibits the construction of a tourism enterprise without authorisation. According to this provision a person shall not commence the construction, reconstruction, renovation, rehabilitation or in any way effect any changes to the structure of a tourism enterprise unless the person has previously applied to, and obtained from the Tourism Enterprise Authorisation and Licensing Committee (the “Committee”), written consent of the director of tourism (the “Director”) to renovate, rehabilitate, reconstruct or effect changes, as the case may be to a tourism enterprise.
Section 15(2) further states that a person shall not operate a tour operator or travel agent or operate any tourism enterprise except in accordance with a licence issued by the Committee.
A tourism enterprise includes the construction of a hotel; a tour‐operating business; a travel agency business; an air charter business; a vehicle or vessel leasing business; a restaurant or cafe; a discotheque; a convention centre; and such other enterprise catering for tourists as the minister of tourism (the “Minister”) may, by statutory instrument declare.
In section 2 of the Tourism and Hospitality Act, a hotel is defined as a motel, lodge, boarding house, guesthouse, camp, camping site and any building or premises used for accommodation of the public in which lodgings are provided and provisions are supplied by the manager thereof but does not include any government rest house, hostel, school or such council rest house as the Minister may, by statutory instrument, exclude.
Any person who fails to obtain the requisite authorisation or licence from the Director shall be liable, on conviction, to a fine not exceeding one hundred thousand penalty units (approximately K 18,000,000) or imprisonment of a term not exceeding one year or both.
Validity of authorisation and licence to operate and construct tourism enterprise Section 23 provides that an authorisation to operate a tourism enterprise shall be valid for a period of twelve months from the date of issue.
An authorisation to construct, reconstruct, renovate, rehabilitee or in any way effect changes to the structure of a tourism enterprise shall be valid for a period of twenty four months from the date of issue, during which period the applicant shall implement the proposed developments.
Obligations of authorisation and licence holders The Tourism and Hospitability Act provides under section 26, for the obligations of authorisation or licence holders. According to this section, every holder of an authorisation, or licence, shall be required to comply with such conditions as the minister may determine. These conditions may require a holder of an authorisation or licence to:
• submit to the director at the end of each financial year, an audited financial statement relating to the operations;
• submit to the director, at the end of the financial year, production and cost accounts of operations;
• submit to the director at the end of the financial year, an annual report outlining developments within the tourism enterprise, to which the authorisation or licence relates;
• submit to the director a report advising plans and statements relating to the tourism enterprise; • allow interviews with, or on behalf of the director regarding any matter provided for under the
tourism and hospitability act;
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• provide a project brief or environmental impact assessment and adhere to any environmental plan or monitoring arrangements as may be approved under the Zambia environmental management act; and
• adhere to any plans, programmes, projects or other reports submitted to the director.
Transfer of authorisation and licence According to section 22 of the Tourism and Hospitality Act, a licence or authorisation shall not be transferred or varied except with the prior approval of the Committee. Furthermore, the Committee is empowered to vary or amend any condition attached to a licence or authorisation on application by the licensee or authorisation holder. Any variation of a term or condition of a licence by the Committee shall be endorsed on the licence or authorisation together with the date when the variation is made and the date when it will take effect.
FINANCIAL SECTOR
OVERVIEW There are several commercial banks in Zambia and other non‐bank financial institutions like building societies. However, the banking industry is dominated by four (4) major banks being Zambia National Commercial Bank Limited (a local bank which is a listed company), Barclays Bank Zambia Limited, and Standard Chartered Bank Zambia Limited which are subsidiaries of Barclays Bank Plc and Standard Chartered Bank Plc respectively and Stanbic Bank Zambia Limited. A few international banks have established branches and subsidiaries in Zambia. Zambia also has various Micro‐finance institutions.
The banking industry is governed by the Banking and Financial Services Act, Chapter 387 of the Laws of Zambia and the Bank of Zambia Act, Chapter 360 of the Laws of Zambia. The banking industry is regulated by BOZ.
Opening and Operating Bank Accounts; There are no restrictions per se in opening or operating a bank account in Zambia other than complying with the relevant bank’s own account opening requirements which follow international best practices. Documents that will generally be required in order to open a bank account include incorporation documentation, introduction references, photographs of authorized signatories, a copy of the Taxpayer Personal Identification Number and board resolutions authorizing the opening of the account.
Obtaining financing from Banking Institutions A Company may obtain financing from banking and financial institutions in Zambia as a way of raising capital.
The process of obtaining financing involves negotiating and entering into a facility agreement with the bank. The duration of the process will mostly depend on the internal procedures of the bank. Depending on the value of the loan, the bank will normally take security. For a loan to a company, this will usually be by way of a debenture or a charge/mortgage. A company can create securities over the following:
• Land; A security may be created by way of a charge or mortgage over land. Mortgages and charges have to be registered at the Lands and Deeds Registry.
• Shares; A security may be created by way of a charge over shares. In addition to the charge, the ‘chargor’ will in most cases be required to execute blank share transfer forms and surrender the forms and the share certificates in respect of the shares to the ‘chargee’. The ‘chargor’ may also be required to execute a power of attorney in favour of the ‘chargee’ to deal in the shares.
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o Zambian bank accounts as well as receivables; o A charge may be created over cash deposits in a bank account. o plant, machinery and fixtures; o A debenture may be created over plant, machinery and fixtures and should be registered
at PACRA. o Intellectual property rights; o Intellectual property rights may be assigned as security.
The insurance industry There are no more than (20) insurance companies and three (3) re‐insurance companies operating in Zambia. The governing statute for insurance matters is the Insurance Act, No. 27 of 1997.
Other financial sectors Zambia has a few investment banks which are licensed and regulated by the Securities and Exchange Commission. An examples of an investment bank operating in Zambia is the Bank of China
The capital markets The primary legislation dealing with capital markets is the Securities Act, Chapter 354 of the Laws of Zambia (“SEC Act”). The Securities and Exchange Commission (“SEC”) is established under the Securities Act. SEC licenses securities exchanges, dealers, investment advisers and their respective representatives and of persons who are according to the Act non‐bank custodians or service registrars.
The Lusaka Stock Exchange (“LuSE”) was formed in 1993 with the help of the World Bank and the International Finance Corporation (“IFC”) and is a member of the African Stock Exchanges Association. The formation of the Exchange is part of the Government’s economic reform programme aimed at developing the financial and capital market in order to support and enhance private sector initiative. Being the umbrella under which the entire Securities Market operates in Zambia, the Securities Act creates and defines a central market in which both unlisted and listed securities trade on exchange as opposed to the dual market system.
Under the Act, SEC has an obligation to ensure the following; that any person dealing or advising on securities must be licensed by the SEC; that any securities market must be licensed as a securities exchange by the SEC; that all securities of a public company which are publicly traded must be registered by the SEC; and that collective investment schemes must be authorised by the Commission.
A Compensation Fund is established under the SEC Act and is designed to compensate persons who suffer pecuniary loss occasioned by the default of a licensed dealer or licensed investment advisor. It is also worth noting that several incentives have been put in place in order to promote the development of the capital market in Zambia. For instance, there are no exchange controls, there are no restrictions on shareholding levels and foreign ownership, also, there is no capital gains tax, corporate income tax has been reduced to 30% for companies listed on LuSE and there is no property transfer tax on listed securities.
WATER The major enactment relating to and governing the usage and maintenance of water is the Water Resources Management Act No 12 of 2011 (“Water Act”). Through this Act, the Water Resources Management Authority (“WRMA”) is also established; whose functions include the identification, preservation and protection of potential and already existing sources of fresh water and the environment in general.
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Permits for water use By Section 69 of the Water Act states to the effect that water recognised authorities are prohibited from granting licences or permits to persons, without consulting WRMA as to whether such grant may adversely affect water resources in particular.
The following are the activities which do not require permits as listed in Section 70 of the Water Act :
• domestic purposes • the harvest of any rain water from any facility • the investigation of the presence of water in any aquifer • ascertaining the effect of using water from any borehole on any water resource
According to Section 71 of the Water Act, the activities that require permits include the following situations. When any person intends to:
• use water for purposes specified under Section 60, other than for the domestic purposes specified under Section 70;
• construct, acquire any water works, impound, supply or distribute water from any water works or borehole to any other person;
• de‐water any mine, quarry or water works; • drain any swamp, marsh, dambo, wetland, re‐charge area or other land; • construct or acquire any water works for the purpose of draining into, conserving or utilizing, in
any manner whatsoever, water from a water resource; • construct water works necessary to restore the course of a water resource that has changed its
course; • harvest any rainwater by means of a dam, weir or barrage that is on a water resource; • conduct any operation that would interfere with the bank or course of a watercourse; • sink, deepen or alter any borehole for any purpose in a water shortage area; or • carry out any activity in relation to a water resource as may be prescribed.
Furthermore, as to the validity of a water right, according to Section 77 of the Water Act permits for the various water uses listed above can only be granted for a maximum of 25 years, while permits for hydro‐electric [purposes can only be granted for a maximum of 30 years.
Transfer of a water permit with land Section 80 of the Water Act state a that a permit shall specify, as far as practicable, the particular portion of any land or the particular undertaking to which the permit is to be appurtenant, and that on its grant, the permit shall, for its duration:
• be appurtenant to that portion of land or that undertaking; and • pass with any demise, device, alienation, transfer or other disposition of the land or undertaking,
whether by operation of law, or otherwise.
In addition, according to Section 103 of the Water Act, a person is required to apply to the WRMA for a permit to construct water works.
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COMPANY FORMATION AND CORPORATE GOVERNANCE
COMPANY LAW The principal statute dealing with company law is the Companies Act. The Companies Act sets out provisions dealing with all aspects of company law including the incorporation of companies generally, share capital provisions, shareholders rights, offers to the public, the management and administration of companies, accounts, directors duties, consequences of winding up and the regulation of foreign companies based in Zambia.
The Companies Act recognises two (2) types of companies:
• Public companies; and • Private companies (these can be one of three (3) kinds);
o Unlimited companies; o Companies limited by guarantee; and o Companies limited by shares.
A Company incorporated outside Zambia which has established a place of business in Zambia must apply to be registered as a foreign company pursuant to the Companies Act.
Company formation A foreign company which seeks to establish a place of business in Zambia is required to comply with the provisions of Sections 240 to 261 of the Companies Act. In this regard, a foreign company wishing to be registered as such in Zambia is required to have an established place of business no later than 28 days following the lodging of an application for registration as a foreign company to the Registrar of Companies.
Likewise, in the event that the foreign company has acquired a place of business in Zambia, such a company is required to lodge an application for registration as a foreign company within 28 days. The application for registration has to include certain information. The foreign company is also required to fulfil the continuing obligations set out in the aforesaid sections.
The expression “established a place of business” is not clearly defined under the Companies Act.1 The courts in England2 have held that a company has established a place of business if it has a specified or identifiable place at which it carries on business.3 For purposes thereof, it should be intended that the specified or identifiable habitation of the company should have more than a fleeting character.
The issue to be determined is whether one is establishing a place of business or not. The test as aforesaid is whether one will have a specified or identifiable place at which they carry on business which should have more than a fleeting character. If the entity is not deemed to have established a place of business in Zambia, it will not be required to comply with sections 240 to 261 of the Act.
1 However, please note that Section 241 (2) of the Companies Act states that a foreign company shall not be deemed to have
a place of business in Zambia solely on account of its doing business through an agent in Zambia at the place of business of the agent. Further, Section 241 (3) also provides that if a body corporate formed outside Zambia carries on business dealings in Zambia through a broker or general commission agent acting in the ordinary course of his business as such, the office of the broker or agent is not an established place of business of the body corporate. It is also worth noting that Section 241 (1) (b) of the Act provides that a “place of business” includes a share transfer or share registration office.
2 Such English case law would have persuasive force but would not be binding on a Zambian court. 3 Evershed M.R. in Banques des Marchands de Moscou (Koupetschesky) V. Kindersley [1951] Ch. 112, 126, 132.
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We would also like to point out that for purposes of corporate taxation, a company is deemed to be a resident in Zambia if:4
• the company is incorporated in Zambia; or • the central management and control of the company during a particular fiscal year was
conducted in Zambia.
Further, where a non‐resident company has a permanent establishment in Zambia (e.g. a branch or a project office) it will be taxed on the same rate as resident companies. Therefore corporate income tax is at a rate of 35% generally, for both resident and non‐resident companies. It is however worth noting that companies involved in agriculture, manufacture of chemical fertilizer and non‐traditional exports pay tax at a rate of 10%. Mining companies are taxed at a rate of 35% while banks with profits of over K 250, 000, 000.00 are taxed at a rate of 40%.
A foreign investor can set up a place of business in Zambia in the following ways:
• setting up a branch; and • incorporation of a company.
We discuss each of these in turn below.
SETTING UP A BRANCH IN ZAMBIA An investor intending to establish a place of business in Zambia is required under section 245 of the Companies Act to deliver to the Registrar of Companies the following documents:
• A certified copy of either: • the articles of association; • the statutes; and • any other instrument constituting or defining the constitution of the Company;
Statements signed by each documentary agent and local director accepting appointment as such;
The particulars and documents relating to any charge on any property in Zambia, acquired by the company more than 14 days before the lodgement of the application, of, if there are no such charges, a statement in the prescribed form to that effect.
A list of the directors and secretary of the Company containing for each:
• In the case of individuals: o his present Christian name and surname and any former Christian name or surname; o his usual postal address; o his nationality; and o his business occupation, if any.
• In the case of a corporation: o its corporate name; o the registered or principal office; and o its postal address.
4 Section 4(3) (a) and (b) of the Income Tax Act, Chapter 323 of the Laws of Zambia.
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Prescribed forms issued by the Patents and Companies Registration Agency (“PACRA”) are used to provide the information required to register a branch. These forms are required to be signed by a duly authorised representative of the company. Where a foreign company has delivered the information and documents outlined above, the Registrar has to certify that the company has complied with the provisions of the Companies Act and a certificate of compliance is issued to this effect. The certificate is conclusive evidence that the Company is registered as a foreign company with a place of business in Zambia.
Section 259 of the Companies Act sets out the penalties for failing to comply with any of the continuing obligations related to registration of foreign companies. Under the aforesaid section, the company and any of its officers or documentary agents that fail to comply with any of the obligations imposed by the Act are guilty of an offence, and are liable on conviction to a fine. Furthermore, Section 259 (2) of the Act states that if a local director or a documentary agent of a foreign company wilfully fails to comply with any of the obligations imposed upon him by the Act that local director or documentary agent is guilty of an offence, and is liable on conviction to a fine.
A branch which is not a private company incorporated in the Commonwealth will be required to prepare a balance sheet and profit and loss account (income statements) and if it is a holding company, group accounts, in the form prescribed under the Companies Act and deliver copies of these documents to the Registrar for registration, on an annual basis.
INCORPORATING A COMPANY IN ZAMBIA The alternative to setting up a branch in Zambia is to set up an independent company or a subsidiary which unlike a branch will be a separate legal entity from its holding company. The process of setting up an independent company or a subsidiary is similar. In order to incorporate a company in Zambia the following information is required:
• the proposed name of the company. The name must be approved by the Registrar of Companies. In this regard a search can be carried out to ascertain that the desired name is available for registration. Name clearance is a process which takes about 1 to 3 days;
• the general nature of the business of the company stating the principle business and any other business the company intends to undertake; details of the main objects of the company;
• a statement as to whether the Articles of the Company do or do not restrict the business the company will do. Where restrictions are envisaged, their nature and extent ought to be elaborated;
• the situation of the registered company office; • the postal address of the company; • whether the articles place any limit on the number of shareholders; • the particulars of the first directors and first company secretaries including their present
forenames, surnames, former forenames and surnames, National Registration Card and Passport numbers, residential and postal addresses, their occupation and their directorships, if any, in other corporate bodies.
• the share structure of the company, that is, o the nominal capital; o number of shares; and o their share value.
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Generally speaking, both private and public companies are required to satisfy any minimum capital requirements. Private companies are required to have a minimum of K5 000, 000.00 as their capital and this requirement is deemed to have been met upon a director of the company lodging a signed declaration to the Registrar of Companies that this statutory requirement had been met. In the case of public companies, the nominal value of the company's allotted share capital is required to be not less than the authorised minimum, that is, K50, 000,000.00. A company can increase or reduce its share capital if authorised by its Articles. Section 74 of the Act stipulates that a company may, unless its articles provide otherwise, by special resolution alter its share capital as stated in the certificate of share capital by doing any of the following:
• increasing its share capital by new shares of such an amount as it thinks expedient; • consolidating and dividing all or any of its share capital into shares of a larger amount than its
existing shares; • converting all or any of its paid up shares into stock, and re‐converting that stock into paid up
shares of any denomination; • subdividing its shares, or any of them, into shares of smaller amounts than is stated in the
certificate of share capital; or • cancelling shares which, at the date of the passing of the resolution, have not been allotted to
any person, and diminishing the amount of its share capital by the amount of the shares so cancelled.
The Companies Act provides that where a company has made any of the alterations as aforementioned, the company should within 1 month after so doing lodge with the Registrar a notice specifying, as the case may be, the shares increased, consolidated, divided, subdivided, converted, redeemed or cancelled or the stock reconverted and a copy of the resolution authorising the alteration.
It is worth noting that by virtue of section 76 of the Act, in the case of a reduction of share capital, a special resolution and the confirmation of the court to the reduction are required. Creditors are allowed to oppose the reduction of the share capital of a company.
There is no requirement in law for the capital of a company to be in the form of cash (e.g. cash deposits in the bank).
Please note that a private company must have at least 2 shareholders. Where a shareholder is a company the information required is the name, address, date of incorporation and country of incorporation of that shareholder. The Companies Act stipulates further that a company should have at least 2 directors.
The procedure of incorporating a company is therefore as follows:
• reservation and approval of company name; • preparation of the articles of association of the company, statement of nominal capital,
particulars of directors and secretary , notice of situation of registered office and a declaration of compliance (form 11), a declaration of consent to act as director or secretary (Form 5), a declaration of guarantee (in the case of a company limited by guarantee), (together the “Incorporation Documents”).
• lodging the incorporation documents with the PACRA and payment of the incorporation fee. ; and
• receipt of certificate of incorporation from the Companies Registry.
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The articles of association of the company are required to be in the English language, printed, divided into paragraphs which should be numbered consecutively, dated and signed by each subscriber in the presence of at least one attesting witness (the requirement to sign in the presence of one witness is traditional as opposed to being mandatory). The Companies Act contains Standard Articles of Association (First Schedule) that a private company can adopt. . A private company can adopt these standard articles of association fully, with amendments or it can disregard them and prepare its own articles of association.
The company incorporation process takes a period of about five (5) working days to complete.
Corporate governance The governance structure of a limited liability company is divided into two:
• the members/shareholders of the company; and • the board of directors.
The authority to exercise a company’s powers is normally delegated to the directors. The directors may however delegate powers to an individual such as the managing director or a committee of the board.
Section 204 of the Companies Act as aforesaid provides that a company should have at least two (2) directors and half of the directors should be resident in Zambia The Companies Act does not provide for the criteria to be used in appointing directors. However it does proscribe certain classes of persons from validly holding office as directors; such persons include body corporate, infants or persons under legal disability, any person proscribed by court order from so acting and un‐discharged bankrupts. The Act consequently recognises the ability of the company to set its own criteria for appointing directors by virtue of section 204 (4). Generally, the Act provides that where a director retires pursuant to the certain provisions of the Act, the vacancy should be filled by way of ordinary resolution (51%) of the voting shareholders. However, no matter how a director is appointed, under Section 211 of the Act, he can always be removed from office by an ordinary resolution in addition to any other means of removal which may be embodied in the articles.
Unless the articles of association so provide, directors need not be members of a company, but if the articles require a share qualification, then the shares must be taken up within two months or such shorter period as prescribed in the Articles otherwise the office will be vacated. The division of powers between the shareholders and the directors depends entirely on the construction of the articles of association and generally where powers of management are vested in the directors, the shareholders cannot interfere with the exercise of those powers.
The Companies Act in section 208 stipulates residential requirements for directors; the Act provides that more than half of the directors should be resident in Zambia including a managing director and an executive director (if the Company has one). This provision further states that the Minister may, by statutory instrument, permit a company which after 2000 entered into a Development Agreement under the Mines and Minerals Development Act to have not less than thirty percent of its director’s resident in Zambia.
GENERAL BUSINESS AND INVESTMENT ENVIRONMENT
Licencing Regime In order to promote investment in the country, various procedures and rules have been modified. Of note is the licensing and incorporation of companies which has been made relatively easier and faster. Below
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is a summary of the licences, permits and approvals that should be obtained by investors wishing to carry out business in Zambia as limited liability Company’s;
• Certificate of incorporation • The company formation process has been discussed above. • TPIN Certificate
A company is required to register with the Zambia Revenue Authority (“ZRA”) for income tax purposes and obtain a Taxpayer Personal Identification Number (“TPIN”). Upon TPIN being generated by ZRA, it is presented for collection as a certificate. Various categories of businesses are required to register for TPIN; these include Companies, Partnerships, Individuals (Sole Proprietorships), non‐ governmental organizations, clubs, associations and other similar organizations registered with the registrar of societies.
The process of applying for TPIN registration involves filling in an application form known as TPIN 1 which is available at the ZRA client services centre in Lusaka or any local ZRA office. There is a requirement that the form should be accompanied by copies of the following; certificate of incorporation, certificate of share capital and articles of association (in the case of limited companies registered under the companies Act); certificate of registration (in the case of a foreign company registered under the Companies Act); certificate of registration and a statement of particulars approved by the registrar (in the case of a partnership firm registered under the Registration of Business Names Act) and in the case of a Government Ministry/ Institution or a foreign Government or Agency, documentary evidence showing legal existence in Zambia is required.
VAT Registration:
Limited companies are required apply for VAT registration if they deal in taxable goods and services and their taxable turnover exceeds the registration threshold of K 200, 000, 000. 00 per annum. This application can only be done following the TPIN registration. The application is done through the filling in of VAT Form 1 which should be accompanied by the TPIN, a sketch map of location, the latest bank statement, a copy of the business plan, a certified copy of the certificate of registration or incorporation and evidence of records such as thee cashbook, purchases daybook, sales daybook, invoice books etc. VAT registration like any other under ZRA is free. A VAT number can be allocated within 7 working days.
Environmental Impact Assessments Generally speaking, environmental issues are governed by the Environmental Management Act No 12 of 2011. This Act provides for various matters including the granting of licenses for the discharge of effluent, emissions and for the operation of waste disposal sites/plants. Furthermore, the Environmental Impact Assessment Regulations pursuant to this Act impose an obligation on any person intending to implement any project, to prepare and submit a Project Brief to the Zambia Environment Management Agency (“ZEMA”) for approval. The term “Project” is defined as any plan, operation, undertaking, development, change in the use of land, extension and any alterations to land which cannot be implemented without an authorization license/permit from an authorizing authority.
ZEMA may on receipt of a Project Brief direct that an Environmental Impact Statement should be prepared by the developer if it ZEMA determines that the project is likely to have an adverse impact on the environment. Such a statement would be required, even if the developer is undertaking any project as part of a previously approved project.
Failure to submit a project brief or an Environmental Impact Statement (when required to do so) as explained above, or to comply in any way, constitutes an offence that is punishable by a fine, or to
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imprisonment not exceeding one year or to both. Where any false statement has been made, a license maybe cancelled or suspended. It is noteworthy that the Project Brief should be concise and must contain details such as; the site description of the environment; the objectives and nature of the project and reasonable alternatives; the main activities that will be undertaken during site preparation, and construction and after the development is operational; the raw and other materials that the project will use; the products and by‐products, including solid, liquid and gaseous waste generation; the noise level, heat and radioactive emissions, from normal and emergency operations; the expected socio‐economic impact of the project and the number of people that the project will resettle or employ, directly, during construction and operation and generally, the expected environmental impact of the project.
Development permission Where the company is undertaking a development, it is required to obtain planning permission under the Town and Country Planning Act, Chapter 283 of the Laws of Zambia. Section 22 of the Act stipulates that permission is required for any development or subdivision of land that is carried out. .
“Development” is defined as:
“the carrying out of any building, rebuilding or other works or operations on or under land, or the making of any material changes in the use of land or buildings but shall not include; changes of use of land or buildings where the existing and the proposed uses both fall within the same group of land or building uses which may be prescribed and the carrying out of works for the rebuilding, maintenance, improvement or other alteration of any building, being works which affect only the interior of the building or which do not materially affect the external appearance of the building.”
Upon application for development permission, the local authority may either grant permission with or without conditions or refuse to grant permission, stating the grounds for refusal.
Other licences Depending on the particular commercial activity a company is engaged in, there may be other industry‐specific licenses, approvals or permits that the company would be required to obtain. An instance can be seen in telecommunication and energy sector.
Currency and Exchange Rate Zambia operates a floating exchange rate against foreign currencies. Therefore, the exchange rate between the Zambian Kwacha and any other country is determined by market forces, subject of course to interventions from time to time by the Bank of Zambia (“BOZ”). BOZ and commercial banks usually publish on a daily basis the selling and buying prices for various leading currencies.
Implementation of Statutory Instrument Number 33 and 78- The Bank of Zambia (Currency) Regulations, 2012 On 18 May 2012, Zambia passed statutory instrument number 33 of 2012. This made it a requirement that all transactions within Zambia with a Zambian resident would have to be in Kwacha. The Bank of Zambia subsequently issued a clarification note to exempt inter alia foreign currency loans made by Zambian registered commercial banks. It was accepted by Bank of Zambia, although not contained in its clarification note or in the statutory instrument, that foreign currency loans from international banks to Zambian companies was also exempt from statutory instrument number 33 of 2012.
The following are the implications of the Statutory Instrument:
• Existing foreign currency denominated contracts, covering domestic transactions as defined in this clarification should immediately be converted into Kwacha‐denominated contracts at the
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prevailing and spot selling rate as at 18 May 2012. The applicable exchange rates can be obtained from commercial banks by the parties concerned.
• For international transactions, where one party to the transaction is outside the country but where goods and services are produced in Zambia, quotations for prices will be in Kwacha. Payments for such international transactions may be made in foreign currency and the financial system will facilitate the transfer and conversion of such foreign currency receipts into kwacha.
• In addition, on 19 November 2012 however, the Government of Zambia issued statutory instrument number 78 of 2012. This new statutory instrument amended statutory instrument number 33 of 2012. Therefore, under the current law only transactions between residents of Zambia are required to be in Zambian Kwacha.
It is important to note that the issuance of SI No 33 and 78 of 2012 does not amount to a reintroduction of foreign exchange controls. The foreign exchange regime will remain liberal and trading of foreign currency will continue to be undertaken through commercial banks and bureaux de change.
COMPETITION Zambia’s competition law is governed by the newly enacted Competition and Consumer Protection Act, No. 24 of 2010 (“Competition Act”). The scope of the Act is wide and as such applies to all economic activity within Zambia. It binds the state insofar as an enterprise owned by the state engages in trade or business for the production, supply, or distribution of goods or the provision of any service within a market that is open to participation by other enterprises.
The Competition Act was enacted in August 2010 and was basically intended to ensure fair trade competition and free flow of truthful information in the market place, as is the purpose of all other consumer protection laws. The Competition Act forbids any agreement which has as its object or effect, the prevention, restriction or distortion of competition to an appreciable extent. Also, an agreement between enterprises is prohibited if the commission determines the agreement has the effect of preventing, distorting or restricting competition or substantially lessening competition in a market for any goods or services in Zambia.
Horizontal agreements are also prohibited per se if they fix, directly or indirectly, a purchase or selling price or any other trading conditions; divide markets by allocating customers, suppliers or territories specific types of goods or services; involve bid rigging, set production quotas; or if they provide for collective refusal to deal in, or supply, goods or services. Contravention of this provision invites a penalty of a fine.
Furthermore, vertical agreements between enterprises are also prohibited per se, and void, to the extent that they involve re‐sale price maintenance. Re‐sale maintenance however is allowed in a number of instances, including circumstances where the supplier or producer makes it clear to the re‐seller that the recommendation is not binding and where the product has a price stated on it and the words “Recommended Price” appear next to the stated price. An enterprise that contravenes the above is liable to pay the commission a fine not exceeding ten percent of its annual turnover.
The Act further stipulates the share of supply threshold for authorization of restrictive Agreements.
An enterprise is refrained from any act or conduct if through abuse or acquisition of a dominant position of market power, the act or conduct limits access to markets or unduly restrains competition, or has or is likely to have adverse effect on trade or the economy in general.
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An abuse of a dominant position includes inter alia the imposition of unfair purchase or selling prices or other unfair conditions, application of dissimilar conditions to equivalent transactions with other trading parties or making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature have no connection with the subject matter of the contracts.
The commission in deciding to grant authorization for the application of a proposed merger is mandated to carry out a market assessment to determine the likely effects of the proposed merger in the relevant market. It also has to assess whether the merger is likely to prevent or substantially lessen competition in a market in Zambia. Additionally, the Commission may, in considering a proposed merger, take into account any factor which bears upon the public interest in the proposed merger.
TAXATION
Individuals, corporations and trusts The Constitution of the Republic of Zambia, Chapter 1 of the Laws of Zambia stipulates that Tax can only be altered or stipulated under an Act of Parliament. Income tax in Zambia is therefore chargeable pursuant to the provisions of the Income Tax Act, Chapter 323 of the Laws of Zambia. Personal income tax is paid by a persons’ resident or is deemed to be resident in Zambia. ‘Pay As You Earn’ is the method for collection of income tax from persons who are gainfully employed as the employer is required to deduct the tax from the individual’s salary or wages and remit the same to the ZRA
Income tax is charged directly on profits made by corporate bodies such as limited liability companies and trusts. Therefore businesses are subject to corporate income tax on trading profits and other taxable income such as interest, royalties and rental income. In general, expenses and losses of a revenue nature that is wholly and exclusively incurred for the purpose of the business are allowable as deductions. For other sources, to be deductible, expenses must have been incurred wholly and exclusively in the production of the income from that source. The Income Tax Act sets out the matters to be considered in the determination of taxable income and also sets out the rates of taxation. The rates do not differ between resident and non‐resident entities. The corporate income tax rates are currently at 35%. It is worth noting that a 1 year 2% discount is granted to newly listed Companies on LuSE.
Withholding tax is payable on dividends, interest, royalties and management fees.
OTHER TAXATION ISSUES
Property Transfer Tax: This is a type of tax imposed by virtue of the Property Transfer Tax Act, Chapter 340 of the Laws of Zambia. Section 4 (1) of the Act stipulates that whenever any property is transferred, there shall be charged upon, and collected from, the person transferring such property a property transfer tax. The rate of property transfer tax according to the Act is charged at three per centum (5%) of the realized value of the property.
Double taxation arrangements Zambia has double taxation relief agreements with Canada, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Japan, Kenya, Mauritius, Romania, South Africa, Sweden, Tanzania, Uganda, the United Kingdom, Norway, Zimbabwe and India (please note that the agreements with the last three states have not yet been ratified.).
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LABOUR RELATIONS
Labour supply Zambia is estimated to have a population of about 13 million and the majority of the population constitutes persons of an employable age. Although the labour supply is high in Zambia, the demand does not match the supply as is indicated by the high levels of unemployment. . Primary schooling is free while tertiary education in government institutions is heavily subsidized by the government.
Labour laws The pertinent pieces of legislation governing labour relations in Zambia include the following:
• the Employment Act, Chapter 268 of the Laws of Zambia; • the Industrial and Labour Relations Act, Chapter 269 of the Laws of Zambia; • the Workers Compensation Act, No. 10 of 1999 (which repealed and replaced the Workers
Compensation Act, Chapter 271 of the Laws of Zambia) • the Minimum Wages and Conditions of Service Act, Chapter 276 of the Laws of Zambia. • the National Pension Scheme Act, Chapter 256 of the Laws of Zambia.
The pertinent provisions of these statutes are discussed below:
The Employment Act, Chapter 268 of the Laws of Zambia (“Employment Act”). The Employment Act principally makes provision for the employment of persons; for the engagement of persons on contracts of service; for the form of and enforcement of contracts of service; for the appointment of officers of the labour department and for the conferring of powers on such officers and upon medical officers; for the protection of wages of employees; for the control of employment agencies; and for any matters incidental thereto.
Section 12 of the Employment Act prescribes a minimum contractual age; the employment of any person below the age of 15 is therefore an offence. This provision excludes contracts of apprenticeship entered into with minors that are approved by the Controller in accordance with the Apprenticeship Act, Chapter 275 of the Laws of Zambia. Unlike the Employment Act, a minor under the former Act is any person below the age of 21.
Section 45 of the Act provides for authorised deductions; therefore t is permissible for the employer to make deductions from the employee’s salary of a specific nature. There is no threshold stated in the Act above which the employer is proscribed from exceeding. The specific instances in which the employer is allowed to deduct from an employee’s salary are set out below:
for purposes of contributing to any provident, medical or pension fund or any other fund or scheme approved by the minister in charge of the ministry of labour and social security to which the employee has agreed in writing to contribute;
• where the deduction is a reasonable amount for any damage done to, or loss of, any property lawfully in the possession or custody of the employer occasioned by the wilful default of the employee, if such amount and its deduction are duly accepted in writing by the employee;
• where any amount has been paid to the employee in error as wages in excess of the amount of wages due to him;
• where any shortage of money arising through the negligence or dishonesty (not amounting to a criminal offence) of an employee whose contract of service provides specifically for his being
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entrusted with the receipt, custody and payment of money occurs. in such instances, the amount of money deducted has to be commensurate with the shortage recorded;
• where the employee is repaying a loan made by the employer him, at his request, for a purpose beneficial to him under the terms of a collective agreement applicable to such employee;
• where the minister has prescribed any such deduction by way of statutory instrument. • where the deduction from the wages of the employee equate to an amount which the employer
is required or empowered to deduct under any written law.
The Employment Act in section 15A provides that unless the parties to the employment contract have agreed otherwise, every female employee who has completed at least two years of continuous service with her employer from the date of first engagement or since the last maternity leave taken, as the case may be, shall, on production of a medical certificate as to her pregnancy signed by a registered medical practitioner, be entitled to maternity leave of twelve weeks with full pay. Maternity leave does not serve to forfeit any other leave such as annual leave, which such an employee maybe entitled to.
The Employment Act offers protection for employees in the case of redundancy. The employer is allowed to terminate the contract of service on grounds of redundancy in instances where he ceases to carry on business by virtue of which the employee is employed or he ceases or reduces the requirement for the employees to carry pout work of a particular kind in the place where the employee was engaged and the business remains a viable going concern. The Act requires that the employer fulfils certain conditions before he can terminate a contract of service on grounds of redundancy.
These conditions include:
• notifying the trade union to which the employee is a member of the impending redundancy not less than 30 days before it is effected;
• granting an opportunity to the union in order that it carries out consultations on behalf of the employee(these consultations are intended to address any questions regarding measures to minimise the terminations and mitigate the adverse effects such terminations may have on the employee); and
• giving notice to the proper officer of not less than 60 days (the notification is required to contain information relating to the reasons for termination by redundancy, the period within which such redundancy has to be effected, the number of categories of employees to be affected and the nature of the redundancy package).
It is worth noting that the employee is entitled to such redundancy payment as agreed by him and his employer or as determined by the minister responsible for labour, whichever is the greater; and such redundancy payments have to be paid to the employee not later than the last day of duty of the employee. However, in an instance where the employer is unable to pay the redundancy benefits on the last day of duty of the employee, he is required to continue paying the employee his full wages until the redundancy benefits are paid.
One anomaly to be found in the Act in relation to redundancy is that provisions relating to it are only to be found in Part IV of the Act. This part of the Act is only applicable to oral contracts and as such there are no provisions relating to redundancy applicable to written contracts of service. The Zambian court has pronounced its stance on the issue and as such the law in Zambia as it stands is that effectively, the Employment Act does not provide for redundancy procedures in relation to written contracts of service5. 5 Barclays Bank Zambia Ltd v Zambia Union of Financial and Allied Workers Union (ZUFIAWU)
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Consequently, where a written contract of service is to be terminated on grounds of redundancy, the parties are to rely on either the provisions relating to redundancy procedures to be found in a Collective Agreement or in the contract of employment itself.
Under the Employment Act, an employee’s contract of employment can be come to an end upon summary dismissal. In relation to both oral and written contracts of service, the Act makes provision for summary dismissal. In the former case, Part IV of the Act provides that wherever an employer dismisses an employee summarily and without due notice or payment of wages in lieu of notice, such an employer has to deliver a written report of the circumstances leading to and the reasons for such dismissal to a labour officer within the District the employer was working within 4 days of the dismissal.
The Employment Act further provides that where an employee is summarily dismissed, he shall be paid on dismissal the wages and other working or other allowances due to him up to the date of such dismissal. It is also worth noting that an employer is not allowed to terminate the service of an employee on grounds related to his conduct or performance without affording him an opportunity to be heard on the charges laid against him. In the latter case, the Act provides in section 36(1) (c) that a contract of service can be terminated in any manner in which a contract of service may be lawfully terminated or deemed to be terminated whether under the provisions of the Act or not. The import of this is that the contract of service can be terminated upon summary dismissal. The three well recognised heads under which summary dismissal can be justified are in cases of misconduct, disobedience and incompetence and/or negligence.
The Constitution of the Republic of Zambia, Chapter 1 of the Laws of Zambia proscribes forced labour as per Article 14 (1). The Employment Act has arguably reinforced this provision by providing in Section 35 that rights arising under any written contract of service should not be transferred from one employer to another unless the employee bound by such contract consents to the transfer. This entails therefore that under Zambian law, an employee has to consent to any change of employer in order that any presumption of forced labour does not arise.
The Act also makes provision for contracts of Foreign Service. The Act requires that such contracts should be in writing and that they are attested. It is significant to note that before attesting a contract of foreign service, a proper officer may require the employer to give security by bond, in such form and in such amount and with one or more sureties resident within Zambia as may be approved by such officer. Such a bond provides for the due performance of the contract by the employer in such terms as the officer may consider reasonable. In lieu of such bond, the officer may require that the employer deposits in cash such a sum as the officer may think necessary to guarantee such performance. Furthermore, the Act provides that when a contract made within another country relates to employment in Zambia, the provisions of the Act will apply to such a contract. The Act provides that where any disputes arise in relation to a contract of service, either party may lodge a complaint to the labour officer or commence an action in either the High Court or the Industrial Relations Court depending on the nature of the matter.
Employment agencies are required to be licensed by the Labour Commissioner. Employment agencies are proscribed from charging the prospective employee for any services rendered. However, they are allowed to charge the prospective employer such fees as may be agreed between them. Every employment agency is required by the Act to keep registers and records and also to submit to the Labour Commissioner such returns as may be prescribed.
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The Industrial and Labour Relations Act, Chapter 269 of the Laws of Zambia (“ILR Act”) The ILR Act provides for inter alia the revision of the law relating to the formation of trade unions and employers' representative organisations, including the formation of federations of trade unions and federations of employers organisations, recognition and collective agreements, settlement of disputes, strikes, lockouts, essential services, the tripartite labour consultative council and the industrial relations court.
By virtue of ILR Act, all employees have a right to be members of a Trade Union (“TU”) of their choice and it is an offence to discriminate a person or treat a person unfairly due to their membership in a trade union. It is however worth noting that where an employee becomes part of management, he/she cannot be a member of any TU.
Employees have certain rights with respect to trade union membership and its activities; specifically, they have the right not to be dismissed, victimised or prejudiced for exercising or for the anticipated exercise of any right recognised by the ILR Act or any other law relating to employment. Consequently, where any employee has reasonable cause to believe that his services or employment has been terminated or where he has suffered any penalty, disadvantage or victimisation for exercising or in connection with the exercise of any rights specified under the ILR Act, he is entitled to lay a complaint before the industrial relations court.
TU’s can negotiate collective bargaining agreements with employers on behalf of their members. In essence, collective agreements when in force are agreements negotiated by an appropriate bargaining unit in which the terms and conditions affecting the employment and remuneration of employees are laid down. As aforementioned, these agreements are significant in determining the procedure for terminating contracts on grounds of redundancy with respect to written contracts of service.
The Act also provides for Employers Organizations which are mandated to represent the interest of employers in their dealings with employees.
One of the pertinent provisions of this Act is to be found in section 108 which proscribes any employer from terminating the services of an employee or imposing any other penalty or disadvantage on any employee, on grounds of race, sex, marital status, religion, political opinion or affiliation, tribal extraction or status of the employee. It is also worth noting that questions have arisen concerning the phrase “status” as used in the provision. Jurisprudence suggests that the word as used in this context refers to the standing of a particular employee within the organisation as opposed to that person’s health etcetera.
The Act while focusing on industrial relations does make provision for the existence of the Industrial Relations Court. The court has exclusive jurisdiction to hear and determine industrial relations matters. The creation of this court has been seen as being highly beneficial as it has enhanced the judicial process generally. This is especially true in light of the heavy case load at the High Court.
The Worker’s Compensation Act of 1999 (No.10) This Act generally makes provision for the An act to revise the law relating to the compensation of workers for disabilities suffered or diseases contracted during the course of employment; to provide for the merger of the functions of the Workers’ Compensation Fund Control Board and the pneumoconiosis compensation Board; to provide for the establishment and administration of a Fund for the compensation of workers disabled by accident occurring, or diseases contracted in the course of employment; to provide for the payment of compensation to dependants of workers who the as a result of accident or diseases; to provide for the payment of contributions to the fund by employees; to provide
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for the appointment and powers of a workers’ compensation commissioner, the establishment and functions of a workers’ compensation fund Board and a workers’ compensation tribunal.
The Minimum Wages and Conditions of Employment Act, Chapter 276 of the Laws of Zambia (“Minimum Wages Act”) The Minimum Wages Act is one which makes provision for inter alia the regulation of minimum wage levels and minimum conditions of employment.
By virtue of this Act, the minister in charge of labour and social security is empowered to prescribe by statutory order, the rates of wages to be paid to workers by the hour, day, week or month; normal hours of work in any day or week; normal working days in any week or month; rates for any work done in excess of or outside the normal hours of work or the normal working days; rates of paid holidays or any conditions attaching to the granting of such holidays; rates for any piecework; rates of allowance for any food or housing; and any other matter which in the opinion of the Minister is necessary or expedient to prescribe. The minister can do this in instances where he is of the opinion that no adequate provision exists for the effective regulation of minimum wages or minimum conditions of employment for any group of workers.
For the purpose of securing the due observance of the Act or any statutory order or regulation made there under, the Labour Commissioner, and any labour officer authorized in writing by the Labour Commissioner have the power to;
• Order the production, for examination, of any record required to be compiled and maintained under the Minimum Wages Act.
• Enter, at all reasonable times, upon any land or premises (other than a private dwelling‐house) where any protected worker is employed.
• Interrogate any protected worker, employer of a protected worker, servant or agent of an employer of a protected worker; or any person in respect of whom there is reason to believe that he belongs, or has belonged, to any of the classes of persons referred to above.
In certain instances, the Labour Commissioner has the authority to institute proceedings on behalf of the employee for the recovery of wages.
The National Pension Scheme Act, Chapter 256 of the Laws of Zambia (“NAPSA Act”) The formulation of the NAPSA Act is one way through which Social Protection is being promoted in Zambia. Generally, the NAPSA Act provides for the National Pension Scheme Authority which has the mandate of managing and controlling the National Pension Scheme. The Scheme is one under which authorised contributions are made by contributing employers and from which all authorised payments are made.
Under the Act, pension benefits are paid to members who; retire on reaching retirement age; retire 5 years before reaching pensionable age (55 years); have made contributions to the scheme for not less than 12 months and also to those employees who are certified by medical practitioners as being mentally or physically incapable of finding gainful employment. It is worth noting that the on the death of a member, pension benefits are paid in accordance with the provisions of the Intestate Succession Act or the Wills and Administration of Testate Estates Act.
Any person in employment can become a member of the Scheme provided that such a person is below the pensionable age albeit over the age of 16.
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A contributing employer is any person, institution or firm registered as a tax payer in a contract of service with an employee or the Government of the Republic of Zambia local authority or a statutory/parastatal body. Contributing employers have an obligation to register as such under the provisions of the NAPSA Act within one month of them becoming contributing employers or the NAPSA Act coming into force. The law further requires that the contributing employers ensure that both the employees’ and their contributions are paid to NAPSA. Based on this premise, the law proscribes the employers from making deductions other than those equal to the employee’s portion for the contribution from the wages of the employees.
The NAPSA Act provides for various classes of benefits for members under the Act. These include Retirement Pension, Invalidity Pension, Survivors Benefits and Funeral Grants. NAPSA is also charged with the responsibility of adjusting pension rates annually in line with any increase in earnings.
IMMIGRATION It is governed by the Immigration and Deportation Act No 18 of 2012. It is an Act that regulates the law relating to immigration and immigration control. It regulates the entry, exit and remaining within Zambia of immigrants and visitors. It also deals with the issuance and revocation of residence permits to applicants who meet the l aid out criteria as prescribed by the Act. Furthermore, by S4 of the Act, the Immigration Department in the Ministry of Home Affairs is established. It also establishes and gives powers to the Director General of Immigration who is the head of the Immigration Department.
The following are the functions of the immigration department
• Controlling all borders; • Administering and regulating all points of entry; • Maintaining public records showing funds received and collected from foreign countries and
donors or other sources; • Regulating the migration of any person into the country; and • Assist in the prosecution of any offence in the Act.
It is significant to note that under the ZDA Act, any foreign investor who invests a minimum of US$ 250, 000 or its equivalent and employs a minimum of 200 employees (of certain technical or managerial levels) is entitled to a self employment permit or resident permit. The Zambia Development Agency further assists the qualifying investor to obtain work permits for up to 5 expatriate employers. . An entry permit holder can apply to be granted a dependant’s pass for each of his dependants.
CONCLUSION Zambia has in the recent past experienced high levels of investment opportunity. With this occurrence, the need for adequate legal provisions and safeguards has been felt now more than ever. The legislature has reacted to this and as such has enacted laws which suite the investment climate both in the country and in the region. The law has consequently undergone a lot of change, keeping abreast with changes in the law is therefore a necessity for any person wishing to enjoy the full benefits of the investment ‘boom’ currently being experienced in Zambia.
Please do not hesitate to contact us should you have any questions or require any clarifications of further information.
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