Profit repatriation : the problem with Uncertainty

Cabo Verde's Profit Repatriation: The Fine Print That Could Trap Your Money

Cabo Verde's investment law sounds perfect on paper. Foreign investors have the guaranteed right to take their profits home. You can convert your earnings into any major currency and transfer it abroad. Simple, right?

Not quite. The guarantee comes with strings attached that could leave your capital stuck in the country for up to two years.

The Registration Trap

Here's the first problem: your right to take money out only exists if you register your investment with Cabo Verde's central bank. You must do this electronically through an agency called Cabo Verde TradeInvest, the day after you get your investment certificate.

Miss this registration—or do it incorrectly—and the law no longer recognises your right to repatriate funds. Your money is legally in the country, but you have no legal right to get it out.

This sounds like a simple administrative step. But it's a step that turns a "guarantee" into a "conditional privilege." Many countries let you move money freely without requiring advance registration. Cabo Verde doesn't.

The Two-Year Wait

The second problem is bigger and more serious.

The law says the central bank must approve your transfer request within 30 days. If they take longer, they have to pay you interest. That sounds reassuring.

But there's an exception that swallows the rule. If the central bank governor decides your transfer "is likely to cause serious disturbances in the balance of payments," he can force you to take your money out in equal quarterly instalments over two years.

Think about what that means. You want to exit your investment. You've made a profit or you've found a better opportunity elsewhere. But the central bank says no—or rather, says "not all at once." You get one quarter of your money every three months. For 24 months.

Why This Actually Happens

Cabo Verde is a tiny economy. Its entire GDP is around $2 billion. The country depends heavily on money coming in from outside: tourists spending money, Cabo Verdeans living abroad sending money home, and foreign companies investing.

Remittances from citizens abroad equal 10.5 per cent of the entire economy. That's enormous. By comparison, remittances in most countries are 2 to 3 per cent of GDP.

The country imports more than it exports. That gap—called the current account deficit—runs about 3 per cent of GDP. It's only manageable because tourism and remittances bring in enough foreign currency to cover it.

Now imagine you're a foreign investor who wants to pull out $50 million or $100 million. In an economy this small, that's a significant chunk of the foreign currency reserves. If several investors want to exit at once, the pressure multiplies.

The central bank's job is to maintain enough foreign currency reserves to keep the Cabo Verdean escudo convertible. The currency is pegged to the euro at a fixed rate. If reserves drop too low, that peg could break. When currency pegs break, chaos follows: inflation spikes, imports become unaffordable, and economic crisis hits.

So the central bank watches capital outflows very carefully. And it has the legal power to slow them down.

The Problem With Uncertainty

The law doesn't define what "serious disturbances" means. How much is too much? $10 million? $50 million? Does it depend on what else is happening in the economy that quarter?

Nobody knows until the central bank makes a decision. That's a problem because investors need to plan. If you're considering a large investment, you need to know under what circumstances you might face a forced two-year exit timeline.

The lack of clear thresholds creates uncertainty. And uncertainty is expensive. It affects how much you're willing to invest, what return you require, and whether you invest at all.

Tax Breaks That Divide Investors

The tax system adds another layer of complexity. Some investors get big breaks. Others don't.

If you're a Cabo Verdean living abroad—part of the diaspora—and you invest in the country, you pay zero corporate income tax on dividends and profits. Complete exemption.

If you're a foreign investor with no Cabo Verdean roots, you pay 20 per cent withholding tax on dividends. Unless your country has signed a tax treaty with Cabo Verde. Portugal, Macau and Guinea-Bissau have treaties. If you're investing from Portugal, your withholding tax can drop to 5 per cent under certain conditions, or 10 per cent otherwise.

But if you're investing from the United States, the United Kingdom, Germany, France, China, Brazil, or dozens of other countries without tax treaties, you pay the full 20 per cent.

This creates an uneven playing field. The policy makes sense from Cabo Verde's perspective—they're trying to attract diaspora investment, which tends to be more stable and long-term. But it means identical investments face different tax treatment based purely on the investor's nationality.

The Data Collection Machinery

The central bank needs to track all this activity to manage foreign exchange reserves. So it collects detailed data from banks on foreign currency transactions, external trade statistics, and runs quarterly surveys covering more than 80 per cent of businesses.

Your investment, once registered, becomes part of that monitoring system. The central bank knows how much you put in, what you're earning, and what you might want to take out.

This surveillance isn't sinister—it's necessary for a small economy managing a fixed exchange rate. But it means there's no such thing as a quiet exit. Large withdrawals are visible and can trigger intervention.

When the System Works Against You

For small investors—say, someone putting in $100,000 or $500,000—these problems are mostly theoretical. Register properly, follow the rules, and your transfers go through in 30 days. The balance of payments clause won't apply to amounts that small.

For large investors, it's a different story. If you're considering investing $10 million, $20 million, or more, you need to assume you might not be able to exit on your timeline. Your capital could be stuck earning local returns for two years while you watch better opportunities elsewhere slip away.

And if something goes wrong—a family emergency, a business crisis back home, a need for sudden liquidity—you can't just sell and leave. You're locked in.

The Cost of Capital Flight Fear

The central bank also worries about a slower bleed. Cabo Verdeans living abroad keep deposits in local banks. If interest rates in Cabo Verde fall significantly below what they can earn in Europe or North America, those deposits might gradually shift abroad.

This hasn't happened yet. But it shapes policy. The central bank keeps interest rates relatively high to retain deposits. In December 2024, the policy rate was 2.25 per cent, up from 1 per cent in May 2023.

Higher interest rates make borrowing more expensive for local businesses. It slows economic growth. But the alternative—capital flight draining reserves—is worse.

Foreign investors get caught in this dynamic. The central bank's caution about outflows affects everyone, even though the real worry is about local deposits leaving gradually, not foreign investment exiting.

The Tourism Vulnerability

Tourism is supposed to provide a cushion. When tourists visit, they bring foreign currency. That helps finance imports and builds reserves.

But tourism is volatile. Covid-19 proved that. When global travel stopped, tourism revenue collapsed. The current account deficit widened. The pressure on reserves increased. And that's precisely when investors might want to exit—when things look uncertain.

In other words, the times you most want to take money out are the times the central bank is most likely to use its emergency powers to keep it in.

The Bottom Line for Investors

Cabo Verde's profit repatriation system looks investor-friendly on the surface. The law guarantees your rights. The currency is stable. The tax treatment can be generous.

But dig deeper and you find significant constraints. Registration isn't optional—it's the gateway to all repatriation rights. The balance of payments clause gives the central bank broad discretionary power. The lack of clear thresholds creates uncertainty. And the economy's structural dependence on foreign inflows means the central bank will always prioritise stability over your exit timeline.

None of this makes Cabo Verde a bad place to invest. But it does mean you can't treat repatriation as automatic. You need to plan for the possibility that getting your money out takes longer than getting it in.

Every coin has two sides. Cabo Verde's investment law promises free repatriation. But the fine print qualifies that promise with conditions that matter more than most investors realise until they try to leave.