Mozambique - Investment Framework

Investment Framework in Mozambique

Forms, Requirements, and State Guarantees for Foreign Capital

Mozambique has developed a comprehensive investment framework designed to attract foreign capital while ensuring meaningful contributions to national development. With a relatively accessible minimum threshold of approximately USD 120,000, the system balances openness to international investment with protections for both investors and the Mozambican economy.

Forms of Foreign Investment

Direct Foreign Investment

Foreign investors can deploy capital in multiple forms, either individually or in combination. The most straightforward is freely exchangeable foreign currency brought in as cash, providing immediate liquidity for operations and development.

Equipment and accessories represent another common form - imported goods, materials, and machinery that form the physical infrastructure of business operations. This approach suits manufacturing, construction, and industrial projects requiring substantial capital equipment.

Intellectual property rights including patents and trademarks can constitute investment, though remuneration is limited to profit participation rather than upfront payments. This structure ensures intellectual property contributions generate ongoing value rather than one-time transfers.

Technology and knowledge, provided they can be monetarily quantified, also qualify as investment. This recognition of intangible assets reflects modern economic realities where expertise and methodologies often represent more value than physical assets.

Specialized services provided from abroad, reinvestment of capital already in Mozambique, and conversion of Mozambican foreign debt values round out the direct investment options. The variety accommodates different investor capabilities and project requirements.

Indirect Foreign Investment

Indirect investment encompasses financial and contractual arrangements rather than direct capital deployment. Loans and shareholder loans provide financing without equity participation. Supplementary capital contributions allow existing investors to inject additional resources.

Patented technology, technical processes, industrial secrets and designs, franchising arrangements, trademarks, and technical assistance all qualify as indirect investment. These forms suit investors contributing expertise, systems, or brand value rather than pure capital.

The distinction between direct and indirect investment matters for regulatory treatment and benefit eligibility, though both categories receive legal protection and can contribute to qualifying thresholds.

Eligibility Requirements and Procedures

The USD 120,000 Minimum Threshold

To qualify for profit repatriation and capital re-export rights - critical benefits for foreign investors - direct foreign investment must reach at least MZN 7.5 million, approximately USD 120,000. This threshold is relatively accessible compared to many African countries, opening opportunities for small and medium enterprises rather than restricting foreign investment to major corporations.

However, investors not meeting this minimum can still qualify through alternative paths. Generating annual turnover of at least three times MZN 7.5 million (approximately USD 360,000) from the third year onward satisfies the requirement. Annual exports of minimum MZN 4.5 million (approximately USD 71,000) also qualify. Alternatively, creating and maintaining employment of 25 or more national employees registered with social security from the second year establishes eligibility.

These alternatives recognize that investment value extends beyond initial capital to include economic activity generation, export promotion, and employment creation - all central to Mozambican development priorities.

Mandatory Procedures

Investment projects must be registered in the name of the implementing company or a reserved company name for that purpose. This ensures accountability and prevents informal or undocumented investment arrangements.

APIEX - the Agency for Promotion of Investment and Exports - must approve investment proposals. This governmental oversight ensures projects align with national priorities and qualify for available benefits.

Registration with the Bank of Mozambique must occur within 90 days of authorization or actual investment entry. This foreign exchange control measure allows monetary authorities to track capital flows and ensure compliance with currency regulations.

Implementation must begin within 120 days of authorization unless different deadlines are specified. This requirement prevents speculative applications or indefinite delays in actualizing approved projects.

Required Documentation

Applications require copies of applicant identification, commercial register certificates or reserved company names, location maps or drawings showing where projects will be implemented, and commercial representation licenses if establishing foreign branches.

The documentation burden is moderate compared to some jurisdictions, reflecting Mozambique's desire to facilitate rather than obstruct legitimate investment while maintaining sufficient oversight to prevent abuse.

Foreign Investor Status

Once qualified, foreign investor status remains valid indefinitely as long as conditions that justified the original grant continue. This stability allows long-term planning without fears of arbitrary status revocation.

Status is transferable through share transfers within Mozambique, subject to proper authorization. This enables investment exits, portfolio adjustments, and ownership restructuring without losing accumulated benefits and protections.

State Guarantees

Property Rights Protection

The Mozambican State guarantees security and legal protection of asset ownership, including industrial property rights forming part of authorized investments. This fundamental protection addresses investor concerns about arbitrary seizure or inadequately compensated takings.

Nationalization or expropriation, should they occur, require fair and equitable compensation. While these terms leave room for interpretation, they establish baseline protections against uncompensated appropriation.

Claims causing losses due to immobilized capital also entitle investors to compensation. This addresses situations where governmental actions, even if not rising to expropriation, prevent investors from accessing or utilizing their capital.

Transfer of Funds Abroad

Exportable profits from eligible investments can be repatriated, allowing investors to enjoy returns on their Mozambican ventures. This guarantee is essential for attracting foreign capital that would otherwise remain in investors' home countries.

Royalties on indirect investments and technology transfer can be remitted abroad, compensating investors contributing intellectual property rather than pure capital. Loan repayments - both amortization and interest on international loans applied to Mozambican projects - can be transferred, enabling international financing.

Compensation proceeds from nationalization or expropriation, should those occur, can be sent abroad. Capital re-export is permitted regardless of whether specific projects qualified for profit export, providing exit flexibility.

These transfer rights, subject to foreign exchange regulations and procedures, address the fundamental investor concern about being able to recover capital and profits from foreign jurisdictions.

Tax and Customs Incentives

Generic benefits available to all eligible projects include customs duty exemption on Class K capital goods for the first five years of implementation, removing import costs on essential equipment and machinery.

Investment tax credits of 5% in Maputo or 10% in other provinces applied to total realized investment and deductible from corporate income tax provide immediate tax relief. The five-year duration and province-specific rates encourage investment outside the capital.

Accelerated depreciation - 50% increases over normal rates for buildings and industrial equipment - reduces taxable income during early operational years when cash flow is often tightest.

Modernization and training deductions up to 10% and 5% of taxable income respectively encourage ongoing investment in technology and human capital development. Public utility works deductions of 110% to 120% incentivize infrastructure development that benefits broader communities.

Sector-specific benefits target priority areas including basic infrastructure, rural commerce, manufacturing, agriculture, tourism, technology parks, major projects exceeding MZN 12.5 billion, rapid development zones, industrial free zones, and special economic zones. These enhanced incentives direct capital toward development priorities.

Conditions and Restrictions

Revocation Grounds

Investment authorization can be cancelled if investors request it, if implementation start deadlines are exceeded, if operations cease for more than three months without prior notice, or if Investment Act provisions or authorization conditions are breached.

These grounds balance investor flexibility with ensuring projects actually materialize and operate as approved rather than remaining dormant or operating contrary to authorization terms.

Foreign Exchange Requirements

All foreign exchange transactions require registration through authorized institutions. Foreign accounts for export and investment revenues are allowed subject to restrictions. These currency controls, while adding administrative burden, help Mozambique manage foreign exchange reserves and prevent capital flight.

Investment Treaties and International Protections

Mozambique has signed bilateral investment treaties with multiple countries including Portugal, providing enhanced protections and dispute resolution mechanisms. Double taxation avoidance agreements prevent profits from being taxed in both Mozambique and investor home countries.

Membership in the Washington Convention provides access to ICSID - International Centre for Settlement of Investment Disputes - giving investors recourse to international arbitration rather than being limited to Mozambican courts for dispute resolution.

summary

The framework offers no nationality requirements for share capital ownership except in specific restricted sectors, opening most of the economy to foreign participation. Investor status remains valid indefinitely once qualified, providing stability for long-term planning.

Regional integration through SADC delivers tariff reductions on goods from member states. Sector-specific enhanced incentives target priority areas with additional benefits beyond generic offerings.

International arbitration access for disputes provides neutral forums for resolving conflicts between investors and the state. Tax stability for major projects, lasting 10 years or more, protects against adverse tax changes that could undermine project economics.

The USD 120,000 minimum threshold, while meaningful, remains accessible to mid-sized companies rather than restricting opportunities to only major multinationals. This democratization of foreign investment opportunities aligns with Mozambique's development needs for diverse capital sources rather than dependence on a few large investors.

The investment framework reflects Mozambique's pragmatic approach - welcoming foreign capital essential for development while maintaining sufficient oversight to ensure investments contribute meaningfully to economic and social progress rather than merely extracting resources or exploiting regulatory arbitrage opportunities.