Cabo Verde Builds Legal Framework to Protect Foreign Capital

Portuguese civil law system offers expropriation safeguards, 30-day profit transfers and corporate tax as low as 2.5% for tech companies

Cabo Verde has constructed a legal and fiscal architecture designed to attract mobile international capital through explicit constitutional protections, guaranteed profit repatriation within 30 days, and corporate tax rates ranging from 20 per cent to as low as 2.5 per cent. The Investment Law of 2012 anchors a framework that treats foreign and domestic investors identically while offering special regimes for strategic sectors.

The system operates within Portuguese civil law traditions, providing transparency and full ownership rights. Foreign investors can own 100 per cent of enterprises in most sectors without local partners. The legal protections extend beyond statutory promises to include international arbitration rights and bilateral investment treaties with nine countries.

Expropriation protections with compensation formulas

The Investment Law guarantees security against requisition, nationalisation or expropriation of private property. Such measures can only occur for public interest reasons and must follow strict legal procedures and non-discrimination principles.

Compensation terms are precise rather than discretionary. Any expropriation triggers "prompt, full and fair compensation" based on the current real value of the investment at the date public utility is declared. The law specifies timing, completeness and valuation methodology rather than leaving these to future negotiation.

Disputes can be settled through international arbitration using ICSID (Washington Convention) rules or International Chamber of Commerce procedures in Paris. Cabo Verde joined ICSID in 2011, giving investors access to the standard international dispute system that operates outside domestic courts.

The law creates additional protections for emigrant investors from the Cape Verdean diaspora, estimated at more than 500,000 people abroad. Diaspora enterprises cannot be confiscated, nationalised or expropriated without just cause and prior fair compensation. That compensation must be paid fully, without delay, and transferred freely to the investor's country of legal domicile.

The right to enjoy fiscal incentives obtained under the Code of Fiscal Benefits cannot be revoked or diminished until the established period expires, provided underlying conditions are maintained and the beneficiary complies with obligations. This creates contractual certainty around tax benefits.

Thirty-day transfer rule with interest penalties

Foreign investors can convert and transfer abroad all income derived from investments, subject to compliance requirements. The critical condition is registration with the Banco de Cabo Verde, processed electronically through Cabo Verde TradeInvest. Failure to register forfeits transfer rights entirely.

Transferable funds include net operating profits, dividends, interest on capital, royalties, commissions for related services, compensation for expropriation or loss, initial and additional capital, and loan repayments with interest. Foreign workers and Cape Verdeans who lived abroad more than five years can transfer employment income after fulfilling tax obligations.

The central bank must authorise transfers within 30 days of request or receipt of additional information. After that deadline, the bank becomes liable to pay interest at the 30-day LIBOR rate on deposited amounts. This financial penalty for delays creates incentives for prompt processing.

Foreign investors can open accounts in convertible currency with authorised financial institutions in Cabo Verde to conduct transactions abroad. The only exception occurs if transfers would cause serious balance of payments disturbances—in which case the central bank governor may mandate equal consecutive quarterly remittances over a maximum two-year period.

Tax rates from 20% to 2.5% depending on regime

The standard corporate income tax rate has fallen progressively: from 25 per cent to 22 per cent in 2019, to 21 per cent in January 2024, and 20 per cent for the 2025 fiscal year. That represents the baseline before incentives.

Special regimes reduce rates dramatically. The International Business Centre offers rates from 2.5 per cent to 5 per cent based on jobs created. Companies creating 50 jobs pay 2.5 per cent corporate tax. Companies creating five jobs pay 5 per cent. Between 2011 and 2018, CIN companies received 90 per cent CIT reduction; from 2019 to 2025, the reduction is 85 per cent.

The Special Economic Zone for Technology—established at TechPark CV in Praia and Mindelo—provides the most aggressive rates. Technology companies pay 2.5 per cent corporate tax during their first five years. They also receive exemptions from VAT, property tax (IUP), stamp duty and customs duties. The combined effect produces what the government calls an "ultra-reduced effective tax rate."

The São Vicente Maritime Special Economic Zone combines ZEEMSV and CIN-CV regimes for investments exceeding $2.7m (CVE275m). Tourism and hotel sector projects receive lower corporate tax rates or temporary exemptions proportional to investment portfolio size and jobs created.

Contractual benefits for large-scale projects

Projects of exceptional size or national interest can negotiate Establishment Conventions directly with the Council of Ministers. Eligibility thresholds were reduced in 2016 to expand access: minimum investment of CVE3bn (approximately $30m), down from CVE10bn previously. Projects must create at least 100 direct jobs within three years, though some sources cite 20 qualified positions as an alternative threshold.

These conventions provide exemptions, rate reductions, deductions from taxable income and accelerated depreciation for corporate income tax, personal income tax, property tax and stamp duty. Benefits cannot extend beyond 15 years. The first five years may offer blanket exemptions.

A separate threshold applies to medium-sized foreign direct investment seeking high-level incentives: CVE550m in Praia, Sal and Boa Vista, or CVE275m in other municipalities, plus creation of at least 10 jobs. This democratises access to preferential treatment beyond mega-projects.

Additional fiscal incentives and deductions

Eligible investments in industrial activities can benefit from tax credits up to 50 per cent of the amount invested. The credit can be carried forward up to 10 years if not fully used in the initial year.

Companies can deduct from tax due amounts ranging from CVE26,000 to CVE35,000 for each new job created in the previous year. The deduction varies by municipality: CVE26,000 for jobs created in Boa Vista, Praia and Sal; CVE30,000 for jobs in remaining municipalities; CVE35,000 for employing disabled persons. This creates geographic incentives favouring less-developed islands.

Capital gains on share sales are generally tax-exempt if shares were held for at least 12 consecutive months. Non-residents holding shares less than one year face a 20 per cent tax rate on gains.

Investments carried out under the Investment Law benefit from a 5 per cent customs duty rate on imports of specific goods connected to the main project. This reduces capital equipment costs for qualifying investments.

Emigrant investor statute and diaspora incentives

The Emigrant Investor Statute, established by Law 73/IX/2020, targets the Cape Verdean diaspora as a source of venture capital. Emigrant investors receive exemption from corporate tax on distributed dividends and profits resulting from authorised external investment.

Post-exemption, a tax stabilisation provision applies: 10 per cent single tax rate on profits and dividends thereafter. This creates certainty around long-term tax treatment following the initial exemption period.

Emigrants also receive customs duty exemptions on materials for construction or renovation of their first residence in Cabo Verde, plus furniture and household appliances. The statute reinforces legal rights to repatriation of profits and capital specifically for diaspora members.

Bilateral investment treaties and arbitration access

Cabo Verde has signed bilateral investment treaties with nine countries: Angola, Austria, China, Cuba, Germany, Italy, Netherlands, Portugal, Switzerland and Mauritius. These agreements typically provide fair and equitable treatment standards, protection against expropriation, and guaranteed transfer rights.

The country is party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. This ensures that international arbitration awards can be enforced domestically, addressing a common concern in emerging markets where judgment enforcement often fails.

Double taxation agreements with EU member states including Portugal and Spain prevent investors from being taxed twice on the same income. This enhances predictability of the tax framework for European businesses and individuals investing in Cabo Verde.

Investment facilitation through single point of contact

Cabo Verde TradeInvest serves as the first and single point of contact for all investors, domestic and foreign. The agency operates the Balcão Único do Investidor—the One Stop Shop—designed to dematerialise and reduce bureaucracy by centralising services.

The target response time for public administration is 75 days. The system aims to compress the timeline from initial inquiry to investment registration certificate, though actual performance against this target varies.

Cabo Verde TradeInvest provides after-care services supporting investors after they obtain registration certificates during the project implementation phase. This recognises that bureaucratic challenges often emerge during construction and operational startup rather than during initial approval.

Information provided for investment projects receives strict confidentiality treatment by all relevant authorities. The confidentiality guarantee addresses concerns about competitive intelligence and government discretion in handling sensitive commercial data.

Legal system foundations and equal treatment

The legal framework operates within Portuguese civil law traditions dating to colonial administration. The system ensures transparency and property rights protections familiar to European and Latin American investors.

All investors, regardless of nationality, enjoy the same rights and obligations under law. Foreign investors have full rights including 100 per cent ownership in most sectors without requirement for local partners. The exceptions are specific: fisheries require 51 per cent Cape Verdean ownership; inter-island maritime transport requires 25 per cent local share.

Investment in any permitted sector is free and does not require prior administrative authorisation beyond existing legal procedures. This establishes a presumption of permission rather than prohibition, with specific licences required only for regulated activities.

Incentives may be general or specific, dependent or automatic, contractual, conditional or temporary. Forms include exemptions, rate reductions, tax deductions, accelerated depreciation and amortisation, or investment tax credit. This provides flexibility in structuring packages for different project types and scales.

The strategic calculation behind the framework

The legal and fiscal architecture attempts to compensate for structural disadvantages through institutional advantages. Cabo Verde cannot compete on market size (600,000 population), natural resources (limited), or labour costs (higher than mainland Africa). It competes on legal predictability, fiscal incentives and frictionless capital movement.

The framework recognises that mobile international capital evaluates risk-adjusted returns. Political stability and democratic governance—Cabo Verde ranks third most democratic in Africa—provide the foundation. Legal protections against expropriation with international arbitration access reduce political risk. Guaranteed profit repatriation eliminates capital control risk. Ultra-low tax rates improve after-tax returns.

The 2.5 per cent corporate tax rate for technology companies represents one of the lowest statutory rates globally. Singapore charges 17 per cent. Ireland charges 12.5 per cent. Even jurisdictions commonly termed tax havens typically offer single-digit rather than sub-3 per cent rates.

Implementation challenges and fiscal sustainability

Legal frameworks on paper differ from implementation in practice. The 30-day transfer authorisation deadline includes LIBOR-rate interest penalties for delays, creating enforcement teeth. Yet implementation depends on central bank capacity, systems reliability and political will across election cycles.

The One Stop Shop's 75-day processing target matters only if consistently met. Bureaucratic delays that extend timelines to six months or a year negate the legal guarantees of expedited processing. Investor after-care services require staffing, training and resources that may not survive budget pressures.

Bilateral investment treaties provide recourse but litigation is expensive and slow. ICSID cases typically take three to five years and cost millions. Treaties deter egregious violations but don't prevent routine administrative friction, inconsistent policy implementation or regulatory changes that alter investment economics.

The tax incentives create fiscal risks in a country where public debt reached 110 per cent of GDP in 2024. A government collecting 20 per cent from some companies and 2.5 per cent from others must ensure revenue arithmetic works. If preferential regimes expand too far, they erode the tax base and constrain public investment capacity.

State-owned enterprise reform remains incomplete. The electricity utility Electra requires restructuring. Port operations need modernisation. Infrastructure bottlenecks can offset legal incentives if power supply is unreliable, port congestion delays shipments, or inter-island transport constrains logistics.

Competitive positioning in African investment landscape

Cabo Verde's legal framework exceeds regional African norms on investor protections, profit repatriation guarantees and tax competitiveness. Full profit repatriation with 30-day processing and financial penalties for delays is unusual. Constitutional protection against expropriation with international arbitration access provides credible commitment mechanisms. Tax rates of 2.5-5 per cent rival any jurisdiction globally.

The question is whether legal architecture alone attracts investment absent market size, natural resources or cost advantages. Companies need customers, workers, infrastructure and inputs. Cabo Verde offers limited domestic market, high energy costs, import dependence and distance from mainland African population centres.

The legal framework compensates for structural weaknesses rather than reinforcing natural strengths. It creates appeal for specific niches: companies targeting Portuguese-speaking markets, West African digital services, Atlantic logistics, or diaspora investment. For these strategies, European legal standards plus political stability plus ultra-low taxes create genuine competitive advantage.

For businesses requiring large domestic markets, cheap labour or local raw materials, the incentives may not overcome fundamentals. The framework serves targeted strategies rather than mass-market industrialisation. Whether that niche is large enough to transform Cabo Verde's economy from tourism dependence to diversified services remains uncertain.

The golden cage strategy

The legal and fiscal framework represents what one assessment terms a "legal golden cage" around foreign capital. The Investment Law and bilateral investment treaties guarantee asset security. Profit repatriation rights ensure capital mobility. Specialised regimes including the International Business Centre and Establishment Conventions offer substantial tax advantages. The combination aims to attract and retain mobile capital in a small, resource-poor island economy.

The strategy recognises that Cabo Verde cannot become a manufacturing powerhouse or commodity exporter. It can become a stable, well-regulated platform for services targeting multiple markets. Technology companies serving Portuguese-speaking Africa and Brazil. Maritime services for transatlantic shipping. Digital services for West African clients. Renewable energy projects feeding the domestic grid and potentially exporting via undersea cables.

The legal foundations are solid: Portuguese civil law, constitutional protections, international arbitration access, bilateral investment treaties. The fiscal incentives are aggressive: 2.5 per cent corporate tax available, profit repatriation guaranteed, customs exemptions provided. The institutional support exists: one-stop shop, after-care services, confidentiality protections.

Whether these elements combine to generate substantial foreign investment depends on execution quality, infrastructure delivery and macroeconomic stability. The legal framework creates possibility rather than certainty. It removes barriers and reduces risks. Whether companies seize the opportunity depends on their strategic needs, competitive positioning and risk appetite. The cage is built. The question is whether the golden bird will arrive.