Madagascar - Investing - The "Free Zone and Enterprise" Law

The law of January 17, 2008, defined the provisions governing the Free Zone and Free Enterprise regime. This regime applies to investments made by national or foreign promoters, or in association with both, in export-oriented activities and according to the categories referred to in this law.

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By export, the law means the sale abroad or to Free Zones and Enterprises of goods and services originating in or coming from Madagascar.
Free Zone Enterprises are export-oriented companies and are composed of three categories: industrial processing companies; service companies; and basic intensive production companies.

Tax incentives
– The application of the Corporate Profits Tax at a rate of 10% and a Minimum Collection Tax at a rate of 5%,
– From the date of effective operation (i.e., 12 months after the issuance of the certificate), an exemption from Corporate Income Tax and the minimum tax will be applied for the first 15 financial years for free zones, for the first 5 financial years for industrial processing free zones, and for the first 2 financial years for service free zones.
– The application of tax reductions for investments in depreciable assets made after the Corporate Profits Tax exemption period,
– A cap of 30% on the taxable base for the amount of tax on the salary income of expatriates,
– Free registration of deeds concluded by free zone companies when the latter are subject to the formality of registration.

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Customs incentives
– The exemption of imports from VAT, and the subjection of exports of goods and services, or sales of goods and services to other Free Trade Zones, to VAT at the rate of 0%,
– The guarantee of the stability of the tax regime established by Law No. 2007-037 of January 14, 2008, except for more favorable provisions,
– Exemption from customs duties and any import tax for specific equipment intended for the preparation, development and operation of Free Zones and Enterprises,
– Exemption from customs duties and any export tax for goods and services exported abroad, or goods and services sold to other Free Trade Zones, and
– The possibility of selling products and services within the national territory, within the limit of 5% of the production actually exported (these sales being subject to the application of VAT).

Companies located in free zones must export at least 95% of their production.
Labor-intensive industries, such as the textile industry, have already benefited from these incentives, thanks to simplified access to European and American markets with AGOA and bilateral trade agreements.
With Madagascar's participation in SADC, COMESA and the IOC, these opportunities have increased significantly.

Any investor is free to conduct their business without prior investment authorization.
Each investor is free to transfer their capital or income as they see fit. The legislation respects property rights (both collective and individual). All investors receive equal treatment. They are free to manage their staff within the framework of the Labor Code and social security policy. At the same time, the State is committed to maintaining a fair and sustainable tax system conducive to the development of foreign investment activities.

The commitments of the Malagasy State in terms of foreign investments.
According to figures from the EDBM in 2019, 41,401 newly created businesses were foreign-owned, highlighting the importance of providing a stable, transparent, and attractive business environment for foreign investors. This sector represents a very high value-added segment of the economy. Every effort has been made to establish an effective system for safeguarding capital and ensuring confidentiality regarding collective and/or individual property rights. In Madagascar, all investors, whether foreign nationals or native citizens, receive equal legal treatment. To this end, numerous laws have been enacted.