INSIGHT: Early Days for Angola Value-added Tax
Nov. 20, 2019, 8:00 AM
After some setbacks and hurdles, value-added tax finally entered into force in Angola on October 1, 2019. Tiago Machado Graça of CMS provides an update on progress.
In April, we wrote an article, “Angola Prepares for Value-added Tax in 2019,” on what to expect on the entry into force of value-added tax (VAT) in Angola. We now update it to focus on the approval and the subsequent amendments to the VAT Code and Regulations.
VAT Regime in a Nutshell
The Angolan VAT entered into force on October 1, 2019, and from that date onwards the importation and transfer of goods and the provision of services became subject to 14% VAT.
Only taxpayers registered as “major taxpayers” are subject to the general rules of the VAT Code—the so-called General Regime.
Taxpayers with an annual turnover or annual imports exceeding $250,000 (and not registered as major taxpayers) are subject to a transitory regime until December 31, 2020. These taxpayers may opt to enrol in the General Regime if compliant with certain conditions.
As of mid-October 2019, about 1,922 taxpayers are enrolled in the General Regime (data obtained from the Ministry of Finance website).
From January 1, 2021 the transitory regime will end, and all taxpayers will be subject to the General Regime.
With some minor exceptions, taxpayers with an annual turnover or annual imports not exceeding $250,000 will not be subject to the VAT Code rules.
As a general rule, the General Regime provides for the possibility to deduct the VAT borne by entities on their acquisitions, the reverse charge mechanism, the need to register in the country for VAT purposes, and several VAT exemptions.
Taxpayers subject to the transitory regime are free from the general VAT reporting obligations but need to pay on a quarterly basis 3% VAT on their turnover with the possible deduction of up to 4% of the VAT borne on the acquisition of goods and services.
Services acquired from nonresident service providers may be subject to the reverse charge mechanism (General Regime) or to a self-assessment regime of 3% VAT (transitory regime). The transitory regime may therefore create additional tax burden for Angolan companies acquiring services from abroad.
A special regime was created for oil companies and the state with direct financial impact on their service providers.
VAT is a digitally controlled tax and a Legal Regime for the Electronic Submission of Taxpayers’ Accounting Elements and a Legal Regime of Invoices and Equivalent Documents were also published. These regulations establish the mandatory electronic submission of invoicing, accounting and inventory data of taxpayers, as well as the validity requirements of the Electronic Data Processing System and the rules applicable to the issuing, conservation and storage of invoices and equivalent documents.
Several software service providers have already certified their invoicing software systems and a run to acquire this software occurred in the past few months.
- Companies quickly need to assess if they want to remain in the transitory regime or to apply to the General Regime.
- Internal financial/economic analysis needs to be carried out in order to determine the best scenario for each company. Companies need to know the VAT regime of their major suppliers in order to execute this internal analysis.
- Deductions may be compromised if invoicing requirements are not met by suppliers and service providers.
- Certain taxpayers (for instance oil and gas/state service providers) will have a direct cash flow impact as they will not collect VAT from their clients.
- VAT will be due within the last day of the month following the issuance of the invoice. This may create financial distress in case of late payments by clients.
- The entry into force of VAT has been quite challenging for the authorities, companies and the general population. The authorities are struggling to fight an increase in prices and an escalation of fraud, and taxpayers are still evaluating if it is better or not to opt for the General Regime.
- Many taxpayers are still not complying with invoicing rules and this will create issues for deduction (VAT and corporate tax) purposes.
Tiago Machado Graça is currently working for CMS, where he is involved in the development of the African practice of the firm and plays a pivotal role between its international clients and corresponding African law firms.