On 11 August 2015, Angola’s New Private Investment Law (“NPIL”) came into force on its publication in Angola’s Gazette, repealing the previous 2011 law. Like its predecessor, the NPIL sets out the rules applicable to investments made in Angola, including tax benefits and incentives, investor protections and restrictions on repatriation of funds by foreign investors. It applies to all new foreign investments in Angola (regardless of their amount) and domestic investments with a value of at least Angolan Kwanza (Kz) 50,000,000 (approximately US Dollars 375,000), including those which were awaiting approval at the date of the NPIL’s publication. Those approved prior to 11 August 2015 continue to be governed by the 2011 law. Any benefits enjoyed by investments approved under the 2011 law continue to apply, but cannot be extended.
This article assesses the rationale for the NPIL, its scope and what it may mean for future investment in Angola.
The need for change
Simplifying the approval process
Under the previous 2011 law, a foreign investor could only repatriate funds and receive tax benefits and incentives for foreign investment plans for at least US Dollars 1,000,000 which were approved by the National Agency for Private Investment (the “ANIP”). Obtaining ANIP approval was a lengthy process. One of the objectives of the NPIL is to reduce the bureaucracy surrounding the procedures for the acceptance of eligible investments. In order to achieve this objective, the ANIP (which has been the relevant authority for approving investment projects for over ten years) is no longer responsible for approving investment contracts. Instead, the power to approve investment contracts is granted to the executive branch of government. Further regulation must be brought into force to confirm the approval process. It is likely that there will be teething problems with whatever approval process is brought about by the awaited regulation, as the relevant ministerial authority will not have the same level of experience as the ANIP. However, established Angolan ministers have assured investors that the approval process for private investment will be faster, as ministerial departments will be in direct contact with the investors.
Given the crucial role that the oil and gas industry plays in Angola’s GDP growth, the dramatic decline of oil prices in 2014 had a negative impact on the level of foreign investment coming into the country. In order to stimulate a cash injection into Angola and to strengthen the country’s business sector, the NPIL aims to (a) make Angolan investment more attractive to foreign investors; (b) provide opportunities for Angolan citizens and their companies and ensure that they are afforded opportunities to participate in projects; and (c) increase the amount of direct investment into the country.
The NPIL seeks to make investment in Angola more attractive to foreign investors by the introduction of the following measures:
Making the eligibility criteria for tax benefits more objective and transparent. Incentives and tax benefits are now analysed objectively in accordance with specific criteria included in the NPIL, including allowing for the gradual reduction of Industrial Tax, Investment Income tax, and Urban Property Tax; and Eliminating the minimum investment amount requirement for all foreign investment proposals. The minimum investment amount prescribed by the 2011 law meant that small and medium enterprises were either discouraged or prevented from investing in Angola. The NPIL has removed this requirement, so that foreign investors can now submit proposals for investment projects below US Dollars 1,000,000. However, proposals which do not meet the previous threshold will not be eligible for certain tax incentives or benefits under the NPIL.
What does the NPIL means for investors?
Under the 2011 law, foreign investors were encouraged, although not required, to enlist a local partner on their projects. The NPIL compels foreign investors to act alongside local Angolan partners when investing in the following industries: (a) power and water; (b) hotels and tourism; (c) transport and logistics; (d) civil construction; (e) telecoms and IT; and (f) media. Notably the local content rules in the NPIL specifically do not apply to the energy sector. A ‘local partner’ can be an Angolan citizen, a state-owned entity or a private Angolan company. A company is only a private Angolan company if its registered office is in Angola, and at least 51% of its share capital is held (directly or indirectly) by Angolan citizens. The local partner must hold at least 35% of the share capital and have effective participation in the management of the investment, and such powers of management must be reflected in the company’s articles of association and the shareholders’ agreement.
Restrictions on indirect investment
The NPIL limits indirect investment to the extent that indirect investment cannot outweigh direct contributions. Indirect investment is defined to include shareholders loans, supplementary capital contributions and franchising. The caps on shareholders’ loans are the most rigorous – shareholder loans can only amount to 30% of the total investment made by a company, and may only be repaid 3 years after the company has registered its accounts.
Once the project is underway, foreign investors have the right to repatriate profits, dividends and other income. However, the NPIL also increases Angola’s income by enforcing an additional surtax of between 15% and 50% on the payment of profits and dividends that exceed the investors’ contribution to the relevant project. Sums which are reinvested into Angola, and not repatriated are not subject to this surtax.
Although the 2011 law provided for some tax incentives, these were calculated separately depending on whether they were Capital Income Tax, Industrial Tax or Property Transfer Tax. The NPIL amalgamates the potential benefit and contains a table listing the criteria likely to be taken into account when considering tax benefits. Such criteria include (a) the creation of jobs for Angolans; (b) equity held by Angolans; and (c) national added value. However, Article 30 of the NPIL expressly states that fiscal incentives are exceptional in nature, not given indiscriminately or automatically or for an unlimited period.