Up Again Angola: Government Relief and Tax

Restructuring

1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

Angola confirmed on 25 May 2020, through the issuance of the Presidential Decree 142/20 of 25 May, the transition from the State of Emergency to Public Disaster Situation due to the COVID-19 pandemic.

The exceptional regime of public procurement provided for in the previous Presidential Decree 128/20 (State of Emergency) is no longer in force, which determined:

  • the acquisition of urgent goods and services necessary to control and combat the pandemic to be subject to an exceptional regime; and
  • the possibility of acquisition under simplified procurement, of essential goods and services, namely medicines, hospital equipment, biosecurity equipment and other essential equipment.

The new Presidential Decree 142/20 (the Public Disaster Situation Regime) no longer refers to the abovementioned exceptional regime, but only legislates on civil construction works, which include public works. According to this, since 26 May, all public tendering processes may be carried out.

In the context of the transition from the State of Emergency to the current Public Disaster Situation, since 26 May there have been no limitations on the execution of public contracts that are currently under execution.

From 8 June, any type of works (including public and private works) may be executed.

According to Presidential Decree 152/20, from 26 May until 8 June, only public works that were considered strategic, priority or urgent could be executed.

Tax

3. What is the position with respect to the applicability of emergency tax measures, including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

The tax measures applied now with the declaration of the State of Calamity come from the previous State of Emergency, and result from Presidential Decree 98/20, where the following measures were stipulated:

  • Extension of the deadline for compliance with ancillary and payment obligations.
  • The deadline for the final settlement of the industrial tax declaratory obligations for group B companies was extended from 30 April to 29 May.
  • The deadline for the final settlement of the industrial tax declaratory obligations for the companies of Group A was extended from 1 May to 30 June.
  • Attribution of the 12-month tax credit to companies on the value of VAT and the payment of imports of capital goods and raw materials that are used to produce of basic basket goods.
  • The possibility, since 13 April, of payment of the urban property tax in four instalments.

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

The emergency tax measures currently approved provide for extensions of deadlines and flexibility on the payment of the due obligations.

As such, there will be, in the following months, additional pressure on the cashflow of companies.

Regarding the new timings of payment obligations and filing of returns, please see question 3 above.

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

Because the tax measures are aimed at postponement of filing obligation or payment of taxes, and not modifying tax rates, in our view there would not be an immediate impact in terms of accelerating or postponing business reorganisations or sales.

However, businesses may consider accelerating such transactions if they expect significant losses.

We also advise businesses to postpone the purchase of administrative, scientific or technical specialised equipment necessary to perform their activity to non-resident collective entities, since for the execution of the OGE/2020 a special contribution was created at a rate of 10% on the value of these contracts, the businesses will still have to pay an additional fee of 10% on the value of the same.

6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

To date, there are no specific tax measures officially proposed or approved targeted at particular sectors.

7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

We consider the primary sector of the economy (agriculture, aquaculture, livestock, forestry and fisheries) as the sector that has most deserved the attention of the Angolan state, with tax incentives and credit lines facilitated for its development.

In terms of tax benefits, we have the following:

  • Reduced rate of industrial tax in 15%, and the general rate is 30%; the government's proposal to change the Industrial Tax Code provides for agriculture at a rate of 10%, while for the other branches it provides for the rate of 25%.
  • Attribution of the 12-month tax credit to companies on the value of VAT and the payment of imports of capital goods and raw materials that are used to produce basic basket goods.

8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

There is no direct provision for a tax increase to meet the financial burden caused by the crisis; however, the Angolan state has been developing a structural reform of the tax system in order to increase the tax base.

This measure will result in an increase in:

  • employment income tax;
  • motor vehicle tax; and
  • urban property tax.

There are political commitments in this regard, because, in the segment of the reform of the tax system, the Angolan government presented the following proposals that have already been approved by the Assembly of the Republic:

  • Reduction of the general rate of industrial tax from 30% to 25%, and of the special rate (applicable to the primary sector of the economy) from 15% to 10%.
  • Adjustment of the table of income rates of employees, from the limits of 7% to 17%, to the limits of 10% to 25%.
  • As a measure aimed at extending the tax base, the General State Budget Law for 2020 provides for the creation of a special contribution on current invisible foreign exchange operations, at the rate of 10%.

9. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax

Other actions to be considered include:

  • analysis of the previous tax registers to claim the reduction of tax losses, since the proposed amendment of the Industrial Tax Code not only provides for the deduction of tax losses of the last three years like the current code, but the deduction of tax losses of the last five years;
  • the option to adopt the general VAT regime, for companies that are not yet part of it, since they can then deduct all the VAT borne on their purchases, leaving this VAT to represent a "cost" to the company; and
  • revising or updating preliminary tax assessments to ensure proper review of applicable tax benefits.

Finance

10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

Companies will need to assess their financials in order to ascertain if they are ready to start functioning again, namely regarding the costs of the applicable health and safety requirements – both those that apply to all businesses and any specific obligations regarding their activity.

The Central Bank (BNA-Banco Nacional de Angola) has introduced measures to regulate the granting of credit by banks for the production of essential goods and the acquisition of raw materials, technology, machinery and equipment necessary for the production of these essential goods. Banks are required to:

  • prioritise the granting of credit facilities which are requested by agricultural cooperatives and small and medium enterprises (SMEs), at a nominal cost to borrowers, with interest and commission rates not exceeding 7.5%;
  • financial year, have granted credit facilities which amount to at least 2.5% of the total net asset value of that bank;
  • grant 50 new credit facilities, if the net asset value of that bank, as at 31 December 2019, is equal to or greater than AOA1.5 billion; or
  • grant 20 new credit facilities, if the net asset value of that bank, as at 31 December 2019, is less than AOA1.5 billion.

BNA has also made available an AOA100 billion credit facility to SMEs (with a maximum of AOA1 billion per company) for the purchase of non-redeemable treasury bonds issued in 2019 or 2020, with residual maturity of up to four years and which have not been pledged as security for credit granted by a commercial bank.

As of 9 April 2020, additional support measures were announced:

  • The Agricultural Development Support Fund (FADA) will provide a credit facility of AOA15 billion for agricultural enterprises, with an interest rate not exceeding 3%.
  • The Angolan Development Bank (BDA) will provide credit facilities of AOA26.4 billion and AOA13.5 billion with an interest rate of 9%, maturity of two years and an interest-only period of 180 days, to finance the purchase by certain producers, traders and distributors of certain agricultural primary products and services.
  • The BDA will provide a credit facility of AOA750 million to finance projects for the modernisation and expansion of up to 15 agricultural and fishing cooperatives per province, with a maximum value of AOA50 million per enterprise, an interest rate of 7.5% and maturity equivalent to the operational cycle of the borrower.
  • FACRA, Angola’s government-backed venture capital fund, will provide AOA3 billion to make equity investments in agricultural, livestock and fisheries cooperatives, which have received loans from the BDA.
  • FACRA will provide an AOA4 billion credit facility to finance microfinance institutions, schools and community credit banks to provide micro-credit to women and young people in activities such as agriculture, food and beverage production, waste recycling and tourism.

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

There are no specific indebtedness mechanisms available for return to business.

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

The law does not prohibit the use of schemes such as equity cure or margin ratchets, but they are not expressly provided for by law. There are no specific remedies regarding return to business in the context of the COVID-19 pandemic.

General remedies should be considered where applicable.

13. What practicalities do you need to consider in relation to audit requirements?

Auditors should make the examination to the business’ financial records, taking into consideration the impact of the COVID-19 pandemic in that specific sector and specific business.

Elements that provide information in relation to this impact should accompany accounting books.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

Banks should grant a 60-day moratorium to borrowers who have regular claims until March 2020 and who have difficulties in paying their instalments, considering the pandemic situation and the former State of Emergency and the current State of Calamity in the country. Borrowers' requests should be addressed to the financial institutions with which they have concluded the credit agreement, duly signed and justifying with proof that they have suffered an economic impact because of the measures of the declaration of State of Emergency.

During that period, financial institutions are prohibited from charging additional costs, interest or commissions and from making any increase in future instalments. They can only increase the number of instalments for customers.

15. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

Notification procedures depend on the terms and conditions of the bond issue documents, but the common representative of the bondholders will always have to be notified, since they are responsible for performing, on behalf of all bondholders, the management acts necessary for the defence of their common interests and in particular:

  • representing all bondholders before the company;
  • representing all bondholders in court, namely, in actions proposed against the company and in proceedings for execution or liquidation of its assets;
  • convening and presiding over the meeting of bondholders; and
  • providing bondholders with information they have requested on relevant facts of common interest.

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

The fact that the issuer’s circumstances change radically or are severely affected is usually established as a reason for waivers and consents to arise, notably to avoid an event of default.

Any waiver, consent or amendment must be agreed (usually in written form) by all parties, as per the bonds issuance documents and must be authorised by the bondholders' meeting.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

Bondholders may meet in a meeting, which must be convened and chaired by the common representative of the bondholders.

The convening of the meeting, if not otherwise provided for in the documents issue, must be made in writing and published in the most widely read newspaper in the locality in which the company's registered office is situated, at least 30 days before the date of the meeting, indicating the agenda and the day, time and place of the meeting.

There is no specific process agreed in light of the COVID-19 pandemic, except for the rules regarding social distancing, gatherings, use of masks and so on. So, these would all apply in the event of personal contact

16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

No. Availability of any return to business funding or relief is not conditional on the use of proceeds for green or social purposes nor linked to sustainability-related outcomes.

This material was prepared by DLA Piper Africa, Angola (ADCA)