Draft:Captive VAT (Angolan Tax System)

Taking into account the various levels of approval in the payment of invoices or equivalent documents by oil investment companies and companies executing the Angola LNG Project, as well as in the execution of public expenses processed via the State's Integrated Financial Management System (SIGFE) and in compliance with the rules for implementing the general State budget, from the moment of receipt of the invoice or equivalent document issued by suppliers of goods and services, you may:

a) There are long delays in VAT payments by suppliers;

b) Encumber oil contracts by including VAT on the invoice;

c)   There are increases in gas prices (mainly in the price of domestic gas).

The ordinary legislator understood that to eliminate or reduce this deficit and the constraints on the treasury of economic agents and service providers in the Oil&Gas sector and in public administration, the “Captive VAT” rule was created at 100%, in accordance with the Code of VAT, to safeguard the liquidity of companies in complying with VAT tax obligations whenever there are delays in paying invoices or equivalent documents.

Captive VAT, is the value of the tax withheld at source, through the technique of tax substitution, as tax on value added for delivery to the State coffers, in its entirety, by the purchaser of goods or services, which appears invoice or equivalent document, and the issuer of the document has the right to deduction in the tax declaration.

Currently in the Angolan tax system, Captive VAT is a success story in taxation through withholding tax, which lists some advantages:

(i) Reduction in the number of tax obligations;

(ii) Simplification of procedures;

(iii) De-bureaucratization;

(iv) Ease of operations;

(v) Ease of inspection process to obtain information.

The right to deduction cannot be discussed by removing its main and fundamental element that carries VAT, which is the “invoice”. The Coordinator of the VAT Implementation Technical Group (Adilson Sequeira), asserts that, in the Angolan tax system with the application of VAT, the invoice or equivalent document is considered as a “Passport” and the VAT, in turn, as the “Visa”, in other words, it is the “indispensable” transport vehicle used by taxpayers under the general regime to take VAT to the State coffers. Along the route, it is possible through the “VAT captive method” that all or part of the transported tax can be deducted from the paid tax, creating a neutralizing effect.

More details can be found in the books by Adilson Sequeira, “VAT – The Genesis of the Angolan Tax and Customs System” and “VAT – Angolan Tax System”, book publisher Almedina, 2024.