Taxes in Cape Verde: what the diaspora and investors need to know

Cape Verde has emerged as an attractive destination for foreign investors, particularly the Cape Verdean diaspora, thanks to a tax system that combines strategic incentives and a stable legal framework.

This archipelago, located in the Atlantic, offers unique opportunities in sectors such as tourism, renewable energies, the blue economy and information technology. For investors, understanding how the Cape Verdean tax system works is essential to maximising benefits and ensuring compliance with tax obligations.

The tax system in Cape Verde is made up of direct and indirect taxes, the main ones being Corporate Income Tax (IRC), Value Added Tax (VAT) and the Single Property Tax (IUP).

In addition, the government has implemented specific tax regimes to attract foreign capital, such as customs duty exemptions and tax benefits for projects in strategic sectors. Law 73/IX/2020, for example, grants exemption from corporate income tax on dividends and profits distributed to emigrants who make direct investments in the country.

To facilitate the investment process, Cape Verde has modernised its public services, including the creation of digital platforms and the “Empresa no Dia” programme, which simplifies company registration. In addition, double taxation agreements with countries such as Portugal and the United States offer legal certainty and avoid double taxation, encouraging the repatriation of profits and reinvestment in the country.

Despite the advantages, investors face challenges such as bureaucracy and the need for greater transparency in administrative processes. However, the government is committed to tax reforms and the digitalisation of services, with the aim of making Cape Verde a more competitive and attractive destination for foreign capital.

Summary table: the main taxes in Cape Verde

Practical example

An investor from the diaspora who opens a hotel in Cape Verde can benefit from:

1. Corporate income tax exemption in the first 5 years of activity, if the project is classified as “Tourist Utility” (Decree-Law no. 22/2020).
2. Exemption from VAT and customs duties the import of construction materials and equipment needed for the project.
3. Double taxation agreements, This allows profits to be repatriated to Portugal without additional taxation.

With these conditions, Cape Verde is positioning itself as a fiscally advantageous destination for foreign investors and members of the diaspora, promoting sustainable economic development and the transfer of knowledge.

Tax Incentives for Foreign and Diaspora Investors in Cape Verde

Tax Regime for Foreign and Diaspora Investors

Cape Verde offers an attractive and competitive tax system, designed to attract foreign and diaspora investment. The country has implemented a series of tax incentives covering exemptions, tax reductions and administrative facilities, with the aim of fostering sustainable economic development. These incentives are regulated by specific legislation, such as the Law no. 73/IX/2020, These are aimed at strategic sectors such as tourism, renewable energies and technology.

Exemption from Taxation on IRPC and Customs Duties

Foreign and diaspora investors benefit from significant exemptions on corporate income tax (IRPC) and customs duties, especially for projects that promote sustainable development:

• IRPCTotal exemption on dividends and distributed profits from authorised foreign investments. This benefit is particularly relevant for diaspora investors who wish to repatriate profits without additional tax charges. (Consular Portal)
• Customs DutiesExemption on the import of building materials, furniture and household appliances for first homes, applicable to emigrants making direct investments in the country. This measure aims to stimulate housing upgrading and property investment.

Tax Benefits in the Tourism Sector

Tourism is one of Cape Verde's economic pillars, and the government has created specific incentives to attract investment in this sector. According to the Decree-Law no. 22/2020, projects with Tourist Utility status can benefit from:

• Tax exemptions: Tax exemption on the import of materials and equipment needed to implement tourism projects.
• Fee ReductionsReducing customs and tax fees for companies that promote sustainable tourism, especially in less developed areas.

These incentives are designed to stimulate the growth of sustainable tourism and improve the country's tourism infrastructure.

Incentives for Renewable Energy and Environmental Sustainability

Cape Verde has committed itself to promoting environmental sustainability by offering tax incentives for projects that use renewable energies and green technologies. These incentives include:

• Tax exemptions: Tax exemption on imports of solar and wind equipment, as well as tax deductions for investments in energy efficiency. (Ministry of Finance)
• Tax deductions: Significant reductions for companies that implement sustainable technologies in line with the Sustainable Development Goals.

Administrative Simplification and Digitalisation

To facilitate access to tax incentives, the Cape Verdean government has invested in modernising and digitising administrative processes. Tax returns and benefit applications can be submitted via electronic platforms, reducing bureaucracy and increasing transparency. (National Directorate of State Revenue)

Table of Taxes and Tax Benefits

Practical Example: Sustainable Tourism Investment

A foreign investor decides to build an eco-resort on one of Cape Verde's least developed islands. The project is recognised as being of Tourist Utility, allowing the investor to benefit:

1. IRPC exemptionProfits generated by the resort are exempt from IRPC.
2. Exemption from VAT and Customs DutiesEquipment and building materials imported for the project are not taxed.
3. Customs Duty ReductionsSpecific solar and wind energy equipment used in the resort has reduced rates.

With these measures, the initial cost of the project is significantly reduced, increasing economic viability and return on investment.

Considerations on Double Taxation Treaties

Cape Verde maintains double taxation treaties with countries such as Portugal and the United States, allowing investors to avoid double taxation on the same income. These treaties facilitate the repatriation of profits and promote the confidence of foreign investors. (S&D Consultancy)

Challenges and Tax Reforms

Despite the attractive incentives, investors face challenges such as bureaucracy and the need for greater transparency in administrative processes. The government has been working on reforms to simplify procedures and increase efficiency in the granting of tax benefits, including the digitalisation of public services. (World Bank)

Main Taxes in Cape Verde: IRC, VAT and IUP

Corporate Income Tax (IRC)

Corporate Income Tax (IRC) is one of the main taxes applicable to companies in Cape Verde. This tax is levied on profits made by legal persons, whether resident or non-resident, who carry out economic activities in Cape Verde. Below are the main aspects of IRC:

• General corporate income tax rateThe standard rate applicable to corporate taxable income is 25%. However, companies operating in strategic sectors, such as renewable energies or sustainable tourism, may benefit from reduced rates or exemptions, depending on the specific legal framework. (CV Consultancy)
• Non-Resident CompaniesFor non-resident companies operating through a permanent establishment in Cape Verde, IRC is levied only on profits attributable to that establishment. Non-resident companies without a permanent establishment are subject to withholding tax on income obtained in Cape Verde.
• Tax IncentivesProjects recognised as being of national interest, such as those that promote sustainable development or job creation, can benefit from exemptions or deductions from IRC. For example, companies investing in special economic zones can benefit from a reduced rate of 10%.
• Practical exampleA foreign company operating a hotel in Cape Verde with an annual profit of €200,000 will pay €50,000 in IRC at the standard rate of 25%. However, if the project is recognised as a Tourist Utility, it can benefit from a total or partial exemption, significantly reducing the tax burden.

Value Added Tax (VAT)

Value Added Tax (VAT) is an indirect tax levied on the consumption of goods and services in Cape Verde. It is one of the country's main sources of tax revenue and has the following characteristics:

• General rate: The standard VAT rate in Cape Verde is 15%, applicable to most goods and services. (Uni-CV)
• ExemptionsCertain goods and services are exempt from VAT, such as basic food products, essential medicines and renewable energy equipment. These exemptions aim to promote access to essential goods and encourage sustainable development.
• Strategic SectorsProjects recognised as strategic, such as those related to sustainable tourism or renewable energies, can benefit from VAT exemptions or reductions. For example, solar equipment imported for clean energy projects is exempt from VAT.
• Practical exampleA company importing equipment for a solar energy project worth €50,000 will not pay VAT due to the exemption applicable to this type of investment.
• Withholding taxIn some cases, VAT may be withheld at source, especially in contracts with public organisations or large companies.

Single Property Tax (IUP)

The Single Property Tax (IUP) is a tax levied on the ownership of property in Cape Verde. This tax is particularly relevant for foreign investors buying property in the country. The main aspects of the IUP include:

• General rateThe standard IUP rate is 1,5% on the taxable value of the property. (CV Consultancy)
• ExemptionsThere are exemptions for tourist projects recognised as being of Tourist Utility, as well as for emigrants who use the property as their own permanent home. These exemptions are designed to encourage foreign investment and the development of the property sector.
• PaymentIUP is paid annually and can be paid in instalments, depending on the total amount owed.
• Practical exampleA foreign investor who buys a property valued at €100,000 will pay €1,500 in IUP each year, unless the property is used for a tourism project or their own home, in which case they can benefit from an exemption.

Specific Contributions: Ecological Fee and Tourist Contribution

In addition to the main taxes, Cape Verde has introduced specific contributions to align the tax system with the objectives of environmental sustainability and the development of the tourism sector:

• Ecological Fee: Applied to products that have a significant environmental impact, such as single-use plastics. This tax aims to promote sustainable practices and reduce the environmental footprint. (Uni-CV)
• Tourist contributionA flat-rate tax applied per night's stay in tourist establishments, intended to fund tourism infrastructure projects and promote Cape Verde as a destination. Currently, the contribution is €2 per night, with a maximum limit of 10 nights per stay.
• Practical exampleA tourist staying 7 nights in a hotel in Cape Verde will pay a €14 Tourist Tax, which will be included in the accommodation bill.

Summary Table of the Main Taxes

This summary offers a practical and objective overview of the main taxes in Cape Verde, with concrete examples to make it easier for foreign investors to understand.

Challenges and Reforms in the Cape Verdean Tax System

Need to Diversify the Tax Base

One of the main challenges facing Cape Verde's tax system is its reliance on a limited tax base. Currently, much of the tax revenue comes from consumption taxes, such as VAT, and specific contributions, such as the ecological tax and the tourist contribution. This dependence makes the system vulnerable to economic fluctuations, especially in sectors such as tourism, which are highly sensitive to global and regional crises.

To mitigate this risk, the government has sought to diversify sources of tax revenue, including the introduction of new taxes and levies. For example, the implementation of a tax on luxury goods, such as yachts and high-end vehicles, has been suggested as a way of increasing revenue without overburdening lower-income taxpayers. In addition, the study by Gilson Pinto and Glória Teixeira highlights the need to explore more wealth taxes, such as the Single Wealth Tax (IUP), to balance the tax burden. (Uni-CV)

Combating Fraud and Tax Evasion

Tax fraud and evasion continue to be significant problems in Cape Verde, jeopardising revenue collection and creating inequalities in the tax system. The government has adopted measures to combat these practices, including the modernisation of inspection systems and the digitalisation of administrative processes. The mandatory electronic submission of the Periodic Income Declaration (DPR) for companies with organised accounting is an example of how technology is being used to increase transparency and efficiency. (Ministry of Finance)

However, the study of Uni-CV warns that these measures need to be complemented by tax awareness and education campaigns to promote a culture of voluntary compliance among taxpayers. In addition, international co-operation is essential to trace illicit financial flows and prevent the use of tax havens.

Simplifying the Tax System

Although the Cape Verdean tax system has evolved significantly in recent decades, it is still considered complex by many investors and taxpayers. The transition to a dual taxation model, with the application of withholding tax rates, has partially simplified the process, but challenges remain. (Ministry of Finance)

Administrative simplification and digitalisation are priorities for the government, which has invested in online platforms for submitting tax returns and benefit applications. These initiatives aim to reduce bureaucracy and increase accessibility for foreign and diaspora investors. However, it is necessary to ensure that these platforms are intuitive and accessible, especially for small and medium-sized companies that may not have the resources to hire tax consultants.

Alignment with Sustainability Goals

Cape Verde has demonstrated a growing commitment to environmental sustainability by integrating this principle into its tax system. Contributions such as the ecological tax and tax incentives for renewable energies are examples of how the country is aligning its tax policies with the Sustainable Development Goals. (Uni-CV)

However, the implementation of these measures faces challenges, such as resistance from traditional economic sectors and the need to balance incentives with revenue collection. For example, while the VAT exemption for solar equipment promotes sustainability, it also reduces the tax base. It is therefore crucial to find a balance between incentives and the need for public funding.

Summary Table: Tax Percentages and Practical Example

Practical Example: Investing in Renewable Energies

A foreign investor decides to implement a solar energy project in Cape Verde, with an initial investment of €500,000. This project is eligible for the following tax benefits:

1. VAT exemptionImported solar equipment is exempt from VAT, resulting in a saving of €75,000 (15% of €500,000).
2. IRC reductionIf the project is recognised as strategic, the CIT rate can be reduced to 15% instead of the general rate of 25%.
3. Customs Duty ExemptionImports of equipment may be exempt from customs duties, further reducing initial costs.

This example demonstrates how tax incentives can make Cape Verde an attractive destination for sustainable investments, while at the same time promoting the country's economic and environmental development.

Conclusion

Cape Verde's tax system is an attractive model for foreign and diaspora investors, thanks to a series of tax incentives aimed at strategic sectors such as tourism, renewable energies and technology. The main benefits include total exemption from IRPC on dividends and distributed profits, exemption from VAT and customs duties on sustainable projects, and reduced rates for investments recognised as being of Tourist Utility. These measures, regulated by legislation such as the Law no. 73/IX/2020, The aim is to foster sustainable economic development and attract foreign capital, while at the same time promoting environmental sustainability and the modernisation of the country.

Despite the advantages, challenges such as bureaucracy, tax evasion and the need for greater transparency in administrative processes still persist. However, the Cape Verdean government has invested in the digitalisation and simplification of the tax system, such as the implementation of electronic platforms for submitting tax returns, as highlighted by National Directorate of State Revenue. In addition, the existence of double taxation treaties with countries such as Portugal and the United States reinforces investor confidence, making it possible to avoid double taxation and facilitating the repatriation of profits.

In short, Cape Verde offers a competitive tax environment that is aligned with the Sustainable Development Goals, making it a promising option for investors looking for opportunities in emerging markets. However, to maximise the benefits, it is essential that investors are aware of the specific regulations and have expert support to navigate the country's tax framework.