US Tax Advice for US Expatriate Living and Working in Mozambique.
Tax Guide for US Expats Living and Working in Mozambique
Who Is Liable For Income Taxes in Mozambique
Residents of Mozambique are subject to tax on their worldwide income. Nonresidents are subject to income tax on income arising in Mozambique. Individuals are considered to be resident if they satisfy any of the following conditions:
- They are present in Mozambique for more than 180 days in a tax year, regardless of whether the days are consecutive.
- They are present in Mozambique for less than 180 days in a tax year, but they maintain a residence in Mozambique under circumstances that indicate an intention to maintain and occupy the residence as a permanent residence.
- They perform functions of a public nature abroad for the Republic of Mozambique.
- They are crew members of a ship or aircraft that are at the service of entities that have their residence, head office or effective management in Mozambique.
Individuals must inform the tax authorities of their residence.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Income tax is levied on employment income paid in cash or in kind.
Directors’ fees. Directors’ fees are taxed in the same manner as employment income.
Self-employment income. Individuals carrying out business activities independently, providing consulting services or engaging in technical, artistic or scientific projects are subject to tax on income derived from such activities.
Investment income. Investment income is subject to withholding tax at a rate of 20%. Resident taxpayers include investment income in their annual taxable income, which is subject to tax at progressive rates (see Rates), and a credit is granted for the tax withheld.
Other income. Other income is subject to withholding tax. Resident taxpayers include other income in their annual taxable income, which is subject to tax at progressive rates (seeRates), and a credit is granted for the tax withheld.
Taxation of employer-provided stock options. Income derived from employer-provided stock options is taxed in the same manner as employment income on exercise of the options.
Capital gains. Capital gains are subject to withholding tax at a rate of 20%. They are included in annual taxable income subject to tax at progressive rates (see Rates), and a credit is granted for the tax withheld.
The tax base for capital gains derived from the transfer of shares decreases according to the length of the holding period for the shares. It is taxed in the annual income tax return.
Capital losses may offset capital gains only.
Exempt income. The following items are exempt from income tax:
- Meal subsidies not exceeding the minimum salary in force
- Other allowances to families and similar payments that do not exceed the legally established limits
- Pensions
- Compensation received within the scope of a dismissal process
Deductions
Deductible expenses. Expenses that may be deducted include union contributions and compensation paid by the employee to the employer.
Personal deductions and credits. Each individual may deduct 36 minimum salaries (the highest minimum salary in force on 31 December of the relevant tax year) in computing taxable income.
Currently the highest minimum monthly salary is MT 5,320 (approximately US$190).
The following amounts may be claimed as tax credits:
- MT 1,500 for each married taxpayer
- MT 1,800 for each single and judicially separated taxpayer
- MT 600, MT 900, MT 1,200 and MT 1,800, for one, two, three or four or more dependent children, respectively
Rates. The following are the tax rates applicable to annual taxable income.
Tax credits. In addition to the personal tax credits (see Personal deductions and credits), advance payments of tax and tax withheld at source may be claimed as a credit against annual tax due.
A tax credit is also allowed for foreign taxes paid.
Relief for losses. Losses incurred in business or professional activities may be carried forward and offset against profits from the same type of activities in the following five years. Losses may not be carried back.
Nonresidents. Nonresidents are subject to withholding tax on their income derived in Mozambique. The general rate of withholding tax is 20%. However, the rate is 10% for income derived from artistic work or social entertainment, gambling, competitions, lotteries and similar contests. The withholding tax is final for all income except for property income. Capital gains derived by nonresidents are subject to tax at a rate of 32%. The tax base for capital gains derived from the sale of shares decreases according to the length of the holding period for the shares.
B. Other taxes
Property tax. Municipal property tax is paid on an annual basis and is calculated at rates ranging from 0.2% to 1% of the total value of the property. The transfer of immovable property is subject to property transfer tax (SISA) at a rate of 2%.
Inheritance and gift taxes. Mozambique imposes inheritance tax and gift (donations) tax. Inheritance and gift tax is payable at rates varying from 2% to 10%, depending on the relationship of the heirs or beneficiaries to the deceased or donor.
C. Social security
Social security contributions are payable monthly on salaries, wages, bonuses and other compensation income, such as productivity premiums and housing allowances. The contribution rates are 4% for employers and 3% for employees. The employer withholds the employee contributions monthly.
Double tax relief and tax treaties
Resident individuals who derive income abroad may claim a tax credit for foreign tax paid, up to the amount of the tax due on such income in Mozambique.
Mozambique has entered into double tax treaties with Italy, Macau, Mauritius, Portugal, South Africa, the United Arab Emirates and Vietnam.
To learn more about the history, culture, economy and other information about Mozambique
We have been preparing US income tax returns for US Citizens and permanent residents living in Mozambique for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Mozambique and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Mozambique.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email