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Cape Verde: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their income from sources in Cape Verde. Although the tax law is uncertain as to whether worldwide or territorial principle applies in the islands, the tax authorities state that Cape Verde follows the territoriality principle.

If the head of the household is a resident, all the other members of the household are considered residents for tax purposes.

Currently, there is a single income tax levied at state level. A reform is scheduled for 2009 splitting this single income tax into two separate income taxes (one for companies and another for individuals).

INCOME TAX (imposto único sobre os rendimentos)

There are four categories of income in Cape Verde:

• Category A - income from immovable property
• Category B - business income
• Category C - investment income (interest and royalties)
• Category D - earned income (employment income)

Income tax is levied at progressive rates. Spouses living together are taxed under an income-splitting system, which allows them to divide their combined income by two for the purposes of applying the progressive rates. The resulting tax liability is then doubled.

Residents are entitled to the following personal deductions:

• Rental payments to the taxpayer’s primary residence, up to CVE240,000 (US$3,023)
• Interest paid in connection with the purchase of the primary residence, up to CVE240,000 (US$3,023)
• 40% of the medical expenses, up to CVE80,000 (US$1,008)
• Substantiated pension payments under judicially approved settlements, up to CVE240,000 (US$3,023)
• 60% of the education expenses of the taxpayer’s dependants, up to CVE240,000 (US$3,023)
• Mandatory social security contributions (or voluntary contributions to supplementary social security schemes)
• Premiums paid for the life or health insurance of the taxpayer and his dependents, up to CVE30,000 (US$378)
• Donations that meet qualifying conditions, up to CVE240,000 (US$3,023)
• Taxes and surcharges paid that is connected to the household income (i.e. property taxes

Residents are also entitled to the following personal allowances:

• CVE200,000 (US$2,519) for single, widowed, and divorced taxpayers
• CVE250,000 (US$3,148) CVE400,000 (US$5,038) for married taxpayers; actual allowance amount depends on how many income earners are in the household
• CVE25,000 (US$315) for each dependent; maximum of four dependents (maximum deduction of CVE100,000 or US$1,260) per household

RENTAL INCOME
Rental income belongs in Category A and is subject to 10% final withholding tax. Residents are entitled to the following deductions:

• 10% of the gross income to account for income-generating expenses
• 30% of the interest and amortization on loans in connection with the purchase or construction of a dwelling rented as permanent accommodation, up to CVE72,000 (US$907)

CAPITAL GAINS
Capital gains derived from selling property connected with a business are subject to capital gains tax. In calculating the taxable capital gains, acquisition costs and incidental costs as well as improvement costs are deductible. Only 50% of the resulting capital gains are subject to tax.

Capital gains realized from selling a resident’s principal residence are exempt from taxation, provided that the proceeds are reinvested in another residential property.

PROPERTY TAX

Property Tax (imposto único sobre o património)

This tax is levied on the property value at a flat rate of 3%.

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