Efficient cash flow management is one of the fundamental pillars for companies' financial sustainability, especially in a challenging economic context like Cape Verde. In this scenario, payments on account of Corporate Income Tax (IRPC) play a crucial role, as they represent a periodic tax obligation that can significantly impact companies' liquidity.
According to National Directorate of State RevenueIn order to comply with the IRPC regime, companies under the organised accounting system must make IRPC payments in instalments three times during the year: March (30%), July (30%) and November (20%). This timetable requires strict financial planning to avoid cash flow constraints and ensure compliance with tax obligations.
Furthermore, the State Budget for 2025, approved by the Law no. 45/X/2024In addition to this, the European Commission has introduced tax measures that reinforce the need for strategic cash flow management. These include limiting the deductibility of debt expenses and maintaining tax incentives for areas such as reinvesting profits and financing start-ups. These provisions emphasise the importance of aligning companies' financial practices with the new tax requirements, while taking advantage of the benefits available.
In this context, strategies such as detailed cash flow planning, diversification of funding sources and optimisation of the cash conversion cycle become indispensable. As emphasised by S&D Consultancy Cape VerdeThese approaches allow companies to anticipate periods of liquidity shortage and adopt proactive measures, such as renegotiating payment terms with suppliers or adjusting credit policies with customers.
This report explores in depth the best practices and strategies for optimising the cash flow of companies in Cape Verde, with a focus on IRPC payments on account. The analysis is based on the latest tax changes and the specificities of the Cape Verdean economic environment, offering valuable insights for financial managers looking to maximise the efficiency and resilience of their operations.
Contents
The payment on account regime for corporate income tax (IRPC) in Cape Verde is a tax mechanism designed to ensure that tax revenue is collected in advance throughout the tax year. This system applies to companies under the organised accounting system and consists of fractional payments based on the previous year's collection. The implementation of payments on account is a common practice in modern tax systems, allowing for more efficient cash flow management for both the state and companies.
According to Cape Verde's tax guidelines, payments on account are made at three points throughout the year: March (30%), July (30%) and November (20%). In addition, the remaining balance must be paid by 31 May, when the annual tax return is submitted. This scheme is essential to avoid delays in tax collection and to mitigate the financial impact of a one-off payment at the end of the tax year. (General Directorate of Contributions and Taxes)
Payments on account are calculated on the basis of the previous year's net IRPC collection, after any tax credits have been deducted. This calculation method ensures that payments are proportional to the company's financial performance in the previous period, automatically adjusting for changes in revenue.
For example, a company with a net collection of 1,000,000 CVE in the previous year must make the following payments on account:
The remaining balance of 200,000 CVE must be paid by 31 May of the following year. This calculation model allows companies to plan their tax obligations in a more predictable way, reducing the risk of default. (PwC Cape Verde)
Although the payment on account regime is an effective tool for tax collection, it can represent a significant challenge for companies' cash flow, especially in sectors with seasonal revenues, such as tourism. In Cape Verde, where the seasonality of tourism is a determining factor, companies can face difficulties in meeting tax obligations during periods of low revenue.
To mitigate this impact, companies can adopt strategies such as:
These measures can help companies balance their tax obligations with other operating expenses, guaranteeing the continuity of operations.
The payment on account regime can also offer indirect tax benefits for companies that manage their obligations effectively. For example, timely fulfilment of payments can avoid fines and interest on late payments, as well as improving the company's relationship with the tax authorities. In Cape Verde, the tax administration has encouraged the use of electronic platforms for submitting declarations and payments, promoting greater efficiency and transparency in the process. (General Directorate of Contributions and Taxes)
In addition, the 2025 State Budget introduced additional tax incentives for micro and small businesses, including the maintenance of simplified tax regimes and benefits for startups. These incentives can reduce the overall tax burden on companies and improve their ability to fulfil payment on account obligations. (PwC Cape Verde)
Despite the benefits, the payment on account regime presents significant challenges, especially for companies with irregular or limited cash flows. To address these challenges, companies must adopt a proactive and strategic approach, including:
These recommendations are particularly relevant in Cape Verde's economic context, where access to traditional bank credit can be limited. Exploring alternative sources of finance, such as crowdfunding and peer-to-peer loans, can offer viable solutions for companies facing liquidity difficulties. (S&D Consultancy)
The transition to electronic submission of tax returns, promoted by the General Directorate of Contributions and Taxes, is an initiative aimed at modernising the tax system in Cape Verde. This change not only increases administrative efficiency, but also reduces operating costs for companies by eliminating the need for paper-based processes. (General Directorate of Contributions and Taxes)
However, the successful implementation of this transition depends on training companies and access to adequate technological infrastructure. Investments in technology and training are therefore essential to ensure that all companies, regardless of their size, can fully benefit from this modernisation.
Companies in Cape Verde can minimise the negative effects of payments on account by adjusting their credit and collection policies. By shortening receivables from customers, companies can improve liquidity and ensure that they have resources available to fulfil their tax obligations.
Strategies include:
Although cash flow planning has already been covered in previous reports, this section focuses on specific strategies for aligning financial forecasts with payment-on-account dates. Unlike the general approaches discussed earlier, this section details how companies can integrate tax obligations directly into their forecasting models.
Dependence on a single source of funding can increase financial risks for companies facing significant tax obligations. Diversification of funding sources is an effective strategy to mitigate the impacts of payments on account on cash flow. This section expands on the idea of alternative financing, already mentioned in previous reports, but with a focus on solutions specific to Cape Verde.
Although seasonality has already been mentioned in previous reports, this section details how companies can mitigate specific financial risks associated with seasonal variations in Cape Verde, particularly in the tourism sector.
Automating tax processes is an essential strategy for companies facing challenges related to payments on account. Although automation has already been mentioned in other reports, this section focuses on how technologies can be applied specifically to optimise tax compliance in Cape Verde.
Maintaining a solid relationship with financial institutions can be a strategic advantage for companies facing challenges related to payments on account. This section complements previous reports by exploring how financial partnerships can be used to improve treasury management.
The cash conversion cycle (CCC) measures the time it takes to transform investments in inventory and other resources into cash flows from sales. This section details how to optimise the CCC to free up working capital and improve liquidity.
Finally, companies can adopt tax planning adjustments to reduce the impact of payments on account on cash flow. This section complements previous reports by discussing specific tax optimisation strategies.
These strategies, when implemented in an integrated manner, can help companies in Cape Verde mitigate the negative impacts of payments on account on cash flow, ensuring greater efficiency and financial sustainability.
The use of advanced forecasting models is an essential strategy for aligning cash flow with the requirements of the IRPC's payments on account regime. Unlike general financial planning approaches, this section focuses on the application of specific tools to forecast the cash requirements associated with tax obligations. Companies can implement forecasting software that takes into account variables such as seasonality, economic fluctuations and regulatory changes. These tools allow for the creation of detailed financial scenarios, helping companies to identify periods of increased cash pressure and proactively adjust their financial operations.
For example, integrating advanced ERP systems can provide real-time reports on available liquidity and future tax obligations, allowing for more efficient management of financial resources. This practice is particularly relevant in sectors with high seasonality, such as tourism in Cape Verde, where revenues can vary significantly throughout the year (S&D Consultancy Cape Verde).
An effective approach to mitigating the impact of payments on account on cash flow is to reduce operating costs. Analysing fixed and variable expenses in detail can reveal opportunities to cut costs without compromising the quality of the services or products offered. For example, renegotiating contracts with suppliers to obtain better payment terms or discounts on bulk purchases can free up financial resources that can be allocated to meeting tax obligations.
In addition, reviewing internal processes, such as automating administrative tasks, can significantly reduce operating costs. Implementing technologies such as robotic process automation (RPA) can optimise repetitive tasks such as reconciling accounts and generating tax reports, allowing companies to direct more resources to strategic areas (Pardal Tech).
Although the creation of specific reserves for tax obligations has been mentioned in previous reports, this section explores advanced methods for maximising the efficiency of these reserves. Companies can use segregated accounts to allocate funds exclusively for the payment of IRPC, ensuring that these resources are not used for other operating expenses.
One innovative practice is to apply short-term investment strategies to these reserves. For example, companies can invest the allocated funds in highly liquid, low-risk financial instruments, such as bank certificates of deposit (CDBs) or money market funds. These investments can generate additional income, helping to reduce the effective cost of tax obligations. However, this approach requires rigorous management to ensure that the funds are available when the payments on account are due (CGD Positive Balance).
Renegotiating payment terms with suppliers and customers is an effective strategy for improving liquidity and ensuring compliance with tax obligations. Companies can negotiate longer terms with suppliers, allowing them to keep cash on hand for longer. At the same time, they can shorten receivables from customers by using incentives such as discounts for early payments.
For example, a company can offer a discount of 2% to customers who pay within 10 days instead of the usual 30 days. This practice can speed up cash inflows, ensuring that resources are available for payments on account. In addition, using accounts payable and receivable management platforms can make it easier to monitor and negotiate deadlines, reducing the risk of default (Pardal Tech).
Given the limited access to traditional bank credit in Cape Verde, companies must explore alternative sources of finance to fulfil their tax obligations. Crowdfunding platforms and peer-to-peer loans are viable options that are gaining popularity. These platforms allow companies to access a wider audience, including international investors, to raise funds quickly and efficiently.
In addition, companies can consider using specific credit lines for paying taxes, offered by some financial institutions. These lines of credit generally have more favourable conditions, such as reduced interest rates and flexible payment terms, making them an attractive option for financing tax obligations without compromising operational working capital (S&D Consultancy Cape Verde).
Tax compliance is a critical element in optimising cash flow in relation to IRPC. Companies must implement strict tax compliance policies, ensuring that all obligations are met within the established deadlines. The use of continuous monitoring systems can help identify discrepancies or delays, allowing for immediate corrective action.
For example, implementing tax management software that integrates financial and tax data in real time can significantly improve the accuracy and efficiency of tax compliance. These systems can generate automatic alerts for impending payments on account, reducing the risk of penalties for delays. In addition, continuous training of finance teams on regulatory changes and best practices can strengthen a company's ability to effectively manage its tax obligations.
Finally, strategic tax planning is a powerful tool for minimising the impact of payments on account on cash flow. Companies can review their revenue estimates to adjust the amounts of payments on account, avoiding overpayments. In addition, they can exploit available tax incentives, such as deductions or tax credits, to reduce the overall tax burden.
For example, a company that invests in innovation projects can benefit from specific tax deductions, reducing the amount of IRPC due. This approach not only improves liquidity, but also encourages business practices that contribute to economic and social development. Collaboration with experienced tax consultants can help companies identify and capitalise on these opportunities effectively.
The IRPC payments on account regime in Cape Verde, although essential for early tax collection and the state's financial predictability, presents significant challenges for companies, especially those with seasonal cash flows, such as in the tourism sector. The obligation to make payments in instalments throughout the year, based on the previous year's net collection, can put pressure on companies' liquidity, requiring strategic financial management to avoid default and ensure operational continuity. Among the main strategies identified to mitigate this impact are detailed cash flow planning, renegotiation of terms with suppliers and customers, and the use of credit lines or alternative sources of funding, such as crowdfunding and peer-to-peer loans. These measures, when implemented in an integrated manner, can help companies balance their tax obligations with other operating expenses, promoting greater financial efficiency.
In addition, the modernisation of the Cape Verdean tax system, with the transition to electronic platforms for submitting returns and payments, represents an opportunity for companies to optimise their tax processes. The adoption of automation technologies, such as ERP systems, can significantly improve tax management, allowing for more accurate forecasts and the efficient allocation of resources. At the same time, taking advantage of tax incentives and implementing strict compliance policies can reduce the overall tax burden and avoid penalties, contributing to companies' financial sustainability. However, these initiatives require investments in training and technological infrastructure, especially for small and medium-sized companies, which face greater resource constraints.
Finally, strategic tax planning and the diversification of funding sources emerge as fundamental pillars for effectively managing the impact of payments on account on cash flow. The creation of specific reserves for tax obligations, combined with short-term investments, can generate additional income and improve liquidity. However, in order to maximise the benefits of these strategies, it is crucial that companies collaborate with tax advisors and financial institutions, ensuring a proactive approach aligned with the particularities of the Cape Verdean economic context. Implementing these practices not only mitigates the challenges associated with the payments on account regime, but also strengthens companies' financial resilience, promoting a more competitive and sustainable business environment.
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