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5 9 Counselor to the UIA President Member of Mozambique Bar Association t 31.10.2015 h UIA Investment Commission SLIDE 1 THE FOREIGN EXCHANGE LEGISLATION IN MOZAMBIQUE SLIDE 2 In 2014, Mozambique’s economy continued to perform strongly with real Gross Domestic Product (GDP) growth of 7.6% and the outlook remains positive. Sustained growth is expected at 287.5% in 1,2015 October - November 2015 and 8.1% in 2016, primarily driven by continued investment in mega-projects and infrastructure. As in previous years, the main drivers of growth will continue to be public expenditure and Foreign Direct Investment (FDI). The main sectors benefiting are construction, services to enterprises, transport 1 C o n g r e s s and communications, the financial sector and extractive industries. In the short term, the main challenge is to remain attractive in terms of FDI, while ensuring fiscal and debt sustainability. Consecutive high fiscal deficits, reaching 10.0% of GDP in 2014, have pushed public debt to 56.8% of GDP. A progressive fiscal consolidation for 2015 and 2016 is expected, accommodating also for a decrease in donor budgetary funding. SLIDE 3 Along this line, the “booming economy of Mozambique has become an attractive economy for investors and entrepreneurs and the liberalization of exchange controls has an important role to play on the axis of "business facilitator”. SLIDE 4 The liberalisation of exchange controls has the capability of enhancing valences in the set of distinctive assets of Mozambique economy. In the last few years Mozambique has undertaken a complete overhaul of its exchange control regime with the objective of promotion the free movement of goods, capital, services, and people. 2 On 11 March 2009 it enacted a new Foreign Exchange Law (in force on 11 July 2011) intended to reinforce the liberalization of existing operations by eliminating the constraints applicable to payment transfers between residents and non-residents. The new Law is likely to provide foreign and local investors with more opportunities and flexibility in structuring cross-border transactions and investments. SLIDE 5 The Foreign Exchange Act The Act 11/2009 of March 11 (“Lei Cambial”/Foreign Exchange Act) governs acts, deals, transactions and operations of all kinds: (i) taking place between residents and non-residents and resulting or may result in payments to or receipts from foreign countries or; (ii) that are classified as foreign-exchange transactions by law. 3 SLIDE 6 The Foreign Exchange Act applies: (i) to currency transactions conducted by non-residents, provided they relate to goods or securities located in Mozambican territory and to rights to such goods or monetary instruments or refer to activities undertaken in Mozambique; (ii) to currency operations performed by residents when they relate to goods, monetary instruments or rights acquired located or generated abroad which are subject to a legal obligation of repatriation; and (iii) to goods and monetary instruments located in Mozambican territory or rights to such goods or monetary instruments. The Foreign Exchange Act also applies to foreign exchange transactions related to foreign investment. For the purposes of the Foreign Exchange Act, services rendered, the transfer of rights and of goods encumbered or sold, when located, 4 produced, used or operated in the country are deemed to be activities carried on in Mozambique. SLIDE 7 In applying the Foreign Exchange Act, it is essential to make a distinction between forex residents and forex non-residents, and what foreign-currency transactions are allowed within its scope. Thus, the following are considered resident Mozambique: (i) Mozambicans residing in Mozambique or whose stay abroad does not exceed one year; (ii) Mozambicans whose stay abroad for a period equal to or greater than one year is for health or study reasons; (iii) all foreign nationals living in Mozambique for over a year, excluding diplomats, consular representatives or similar, foreign military personnel performing governmental duties in the country, as well as members of their families; 5 (iv) private-law corporate persons having their registered office in Mozambique; (v) public-law corporate entities; (vi) Mozambican citizens who are diplomats, consular representatives or similar, military personnel performing governmental duties abroad, as well as members of their families; and (vii) the affiliates, agencies, delegations and commercial representations of non-resident private business entities, legally represented in Mozambique. SLIDE 8 Foreign-exchange transactions All foreign-exchange transactions are subject to registration, but not all require the prior authorisation of the Bank of Mozambique, as in the case of foreign-exchange transactions classified as current transactions. 6 The following foreign-exchange transactions require the prior approval of the Bank of Mozambique: (i) acquisition and sale of gold and silver coin; (ii) export of gold, silver, platinum and other precious metals in bar, ingot or in other not-worked form; (iii) opening and using accounts by non-residents in domestic currency, when related with capital transactions; (iv) opening and using accounts in foreign currency or in units of account used in international settlements or payments; (v) granting credit to residents in foreign currency, including by means of discounting bills, promissory notes, invoice statements, expressed or payable in domestic or foreign currency, where one of the parties is a non-resident; 7 SLIDE 9 (vi) purchase and sale of foreign credit securities; (vii) transactions denominated in foreign currency in units of account that involve or may involve total or partial settlement of capital transactions carried out between residents and non-residents; (viii) transactions denominated in domestic currency in units of account that involve or may involve total or partial settlement of capital transactions carried out between residents and non-residents; (ix) transfer to and receipt from abroad of monetary instruments or means of payment; (x) exchange-rate arbitrage; and (xi) import, export or re-export of foreign currency or other means of payment as well as bills of exchange, promissory notes and invoice statements, shares or bonds, whether domestic or foreign, or coupons and public debt securities. 8 SLIDE 10 Capital transactions Capital transactions that require prior authorisation of the Bank of Mozambique include the following: (i) foreign direct investment; (ii) real-estate investment; (iii) transactions involving participation units of collective investment undertakings; (iv) opening and using bank accounts with financial institutions abroad; (v) credits related to the transaction of goods or provision of services; (vi) financial loans and credits; 9 (vii) guarantees; (viii) transfers in execution of insurance contracts; (ix) transactions on securities and other instruments traded on the money and capital markets; (x) physical import and export of monetary instruments; and (xi) personal loans. Current transactions Current transactions (not currently subject to prior authorisation by the Bank of Mozambique, but only to registration with commercial banks) include any payments or receipts in foreign currency that are not for the purpose of transfer of capital, including payments due in connection with foreign trade, remittances for family expenses and other current obligations, under the terms of the respective regulations: 10 The Bank of Mozambique establishes a table of classification of foreign-exchange transactions, as well as a detailed classification of current transactions. SLIDE 11 According to the Foreign-Exchange Act Regulation (“Regulamento da Lei Cambial”) the following are current transactions: (i) payments for imports of goods and services; (ii) revenues relating to export of goods and services or rental or use of industrial and intellectual property rights; (iii) transfers abroad of the income generated by capital transactions previously approved by the Bank of Mozambique (including dividends from foreign direct investment, interest, dividends and other capital gains on portfolio investment, interest on loans, including shareholders’ loans, income from other forms of capital investment); and 11 (iv) transfers made unilaterally, without any consideration, such as donations of money, alimony or family expenses. For each current transaction to be made by entities authorised to conduct foreign-exchange business certain procedures must be followed and specific documents provided, the said entities being charged with the control of transactions of this type. Banks, exchange bureaux, travel agencies, hotels and similar establishments, and other entities that come to be defined by law are authorised to carry on foreign-exchange trade. General principles and duties The Foreign Exchange Act Regulation establishes the rules and procedures to be followed in carrying on foreign-exchange acts, deals, transactions and operations under the Foreign Exchange Act. All foreign-exchange transactions (that is, capital operations and current transactions) are subject to registration: 12 (i) with the Bank of Mozambique, in the case of transactions subject to its prior authorisation, already approved, and; (ii) with the credit institutions and financial companies, for transactions they carry out that do not require prior approval of the Bank of Mozambique. SLIDE 12 The foreign-exchange registration procedure includes: (i) collecting all information about the foreign-exchange transaction, including the identity of the parties, the nature, amount, purpose and legitimacy of the transaction; (ii) electronic or manual processing of the information; (iii) the filling of copies of supporting documents, and; (iv) the issue of the Foreign Exchange Registration Bulletin (“Boletim de Registo Cambial”). 13 SLIDE 13 Brief Conclusion Mozambique seeks through this exchange control framework to reinforce the liberalisation of existing operations. The Foreign Exchange Law and proposed Regulation are likely to provide foreign and local investments, and over the medium-term the continued challenge is the achievement of an inclusive growth model and the diversification of the economy. The liberalization of exchange controls therefore contributes to the promotion of Mozambique's competitiveness and economy, increasing and strengthening the level of financial development of the country. THANK YOU!!! 14