MOZAMBIQUE: An Introduction to General Business Law: International Firms

MOZAMBIQUE: An Introduction 

After almost two years of pandemic, Mozambiqu's economy is slowly recovering from the effects that were sharply felt across all sectors and is expected to grow by 4% in 2022, according to IMF’s forecast.

Despite remaining vulnerable to the effects of COVID-19 and the insurgency in the northern part of the country, the projections are favourable considering the kick-off of the LNG projects that are capable of placing Mozambique amongst the world’s largest LNG exporters, thus opening a promising page in the country's industrialization and in the opportunities for insertion of SMEs in the supply chain of the Oil & Gas industry.

Other sectors are also in the spotlight, such as Energy, Mining and Infrastructure: 2021 was marked by the first solar-plus storage for the 19 MWp/2MW-7 MWh Cuamba and the decision of Vale Mozambique to divest in the coal-mining business, being the winning bidder Vulcan Minerals, a subsidiary of Jindal Group.

The Mozambican Government is also conducting a broad legislative reform in various sectors to improve and promote a more favourable business environment for investors in the country. The review of the Land Law, Electricity Law, Commercial Code, Investment Law, Labour Law and the Regulation of the Credit Institutions and Financial Companies Law are underway and are a clear sign that there is political will to retain and attract new investors.

One method of pursuing the government’s objective in the Energy sector is to ensure universal access to energy until 2030. Several initiatives have been launched in order to facilitate the development of projects in areas not served by the National Energy Network, including mini-networks with a limited capacity and energetic services such as solar home systems for domestic or production use. A reform of the Electricity Law is highly anticipated since the current law has been in place for more than two decades (since 1997) and neither addresses nor reflects the state-of-the-art in power generation projects, particularly when it comes to renewable sources of energy.

Some advances in the Financial sector, in particular for fintech, are also worth highlighting. With the approval of the Credit Institutions and Financial Companies Law in 2020, for the first time fintech companies were deemed financial services providers as recognition of their importance on the promotion of financial people for unbanked people. In this context, the Bank of Mozambique is in the course of approving a lighter regime applicable to other payment service providers other than those already caught up by the Mozambican Payment Services Law, which should also boost the entry into Mozambique of major players in the fintech market.

The investment legal framework currently in force is composed by the Investment Law and its respective Regulation, which was established to foster the investment environment, granting some degree of flexibility in carrying out investment projects by both domestic and foreign investors who are the driving force of the country’s development and progress. It establishes the benefits, guarantees and incentives for investments made under an investment project or developed in Industrial Free Zones ("IFZ") and Special Economic Zones ("SEZ").

Depending on the economic activity pursued by the investor and the geographic area of the projects, incentives and benefits under the legal framework vary from: (i) tax incentives and customs duties exemptions on the import of construction materials, machinery, equipment, goods and services; (ii) special foreign exchange regime, allowing free remittance of funds, for the opening and handling of bank accounts in foreign currency, inside and outside the country; (iii) a special migration regime, granting the right of permanent residence in the country extensive to family members, and annual tourism visas with multiple entries, and the hiring foreign workers above the established legal requirement.

With the recent amendment of the Investment Laws and Regulations the minimum investment amount of foreign direct investment must be equivalent to MZN 7.500.000,00 (seven million and five hundred thousand Meticais) to benefit from such incentives.

Moreover, Mozambique signed twenty-six Bilateral Investment Treaties (“BIT”) with Algeria, Belgium-Luxembourg, China, Cuba, Denmark, Egypt, Finland, France, Germany, India, Indonesia, Italy, Japan, Mauritius, Netherlands, Portugal, South Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, United Kingdom, United States of America, Vietnam and Zimbabwe, set to foster and protect foreign investors from other contracting parties whenever they invest in Mozambique or whenever Mozambican citizens invest in another contracting party’s territory.

Aligned with the principle of 'equal treatment' established under the Mozambican Investment Law, all BITs signed by Mozambique include the common provision of the 'most favored nation' principle, which states that the contracting parties are forbidden to treat the investments made by a foreign investor in a less favourable manner than the investments made by domestic investors.

Finally, Mozambique has also subscribed to nine double taxation agreements with Botswana, India, Italy, the Special Administrative Region of Macau, Mauritius, Portugal, South Africa, United Arab Emirates and Vietnam for the avoidance of double taxation.