UPDATE 1-Mozambique to tax capital gains at fixed rate of 32 pct

Mon Dec 17, 2012 8:13am EST

Related Topics

* Amended capital gains tax law becomes effective Jan 1

* Will not be applied retroactively (Adds details, quotes)

By Agnieszka Flak and Pascal Fletcher

JOHANNESBURG, Dec 17 (Reuters) - Mozambique will apply a 32 percent tax on future sales of local assets by foreign companies operating in the emerging coal and gas producer as it seeks a greater share of profits from its mineral wealth, a tax official said on Monday.

Several oil and mining majors have rushed in to Mozambique to seek opportunities in what is expected to become one of the world's leading coal and gas exporters and the tax will affect future sales of assets located in the southern African state.

The parliament in the former Portuguese colony passed an amendment to its corporate income tax regime last week. This stipulates that sales of Mozambican assets held by non-resident entities will be taxed at 32 percent without consideration for the period they were held.

Up to now, the sale of local assets belonging to foreign companies have been taxed on a progressively declining basis, depending on the length of time they were held.

"The alteration consists of the rate (32 percent) being applied, independently of the period of the contract," Herminio Sueia, director general of planning, studies and international cooperation at Mozambique's tax authority told Reuters.

"The rate is the rate."

The amended law will come into force on Jan. 1 next year, but will not be applied retroactively to deals completed before.

The fixed rate tax is far above the 12.8 percent rate applied to capital gains on the buyout of Cove Energy by Thailand's PTT Exploration and Production.

"The amended code will give the government very broad jurisdiction to levy this tax, including indirect transfers of interests in non-resident companies with local assets," Eurasia Group analyst Mark Rosenberg said in a note.

"As a result, even an ordinary stock exchange transaction involving a company with Mozambican assets would be subject to Mozambican capital gains tax."

Sueia said the state sought to clarify current legislation.

"The second reason was to optimise the gains for the nation from these operations," he said. "The idea is not to discourage investment... We think it's fair."

The government has been keen to amend the code to reap bigger profits from growing coal and gas investment, especially as actual production of gas is still years away.

Mozambique's government has faced criticism from civil society and the opposition over huge tax breaks it granted to outside firms as it sought to attract investment in the years following a bloody civil war which ended in 1992.

The government was particularly chastised over this after Rio Tinto paid $4 billion to buy coal explorer Riversdale without having to pay any capital gains tax.

Oil majors, including U.S.-listed Anadarko Petroleum and Italy's Eni will also be affected by the amended law if they proceed to sell parts of their interest in the gas blocks in the offshore Rovuma basin. (Editing by Matthew Tostevin)

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