iGuide Madagascar

A natural or legal person who carries out an activity in Madagascar must register within 30 days of starting the activity. Opening a bank account is mandatory for any newly registered company.

There are two types of entities that can be registered in Madagascar:

• a subsidiary, which will adopt an autonomous legal form according to the Malagasy Law, registered as a commercial company, usually a limited company (SA) or a limited liability company (SARL);
  
• a branch, which does not have an independent legal personality, cannot act in its own name. In practice, the branch can have several names such as liaison office, resident representative or representative office, commercial branch, agency .... 
  

A newly registered business entity must apply for taxpayer identification number (NIF), a statistics number from the National Bureau of Statistics (INSTAT) and an RCS number from the Trade and Companies Registry (Registre des Commerces et des Sociétés). Registration is also required with the National Fund for Social Welfare (CNaPS) (see Labour tab). 

The entities are represented at the Economic Development Board of Madagascar, within its one stop shop, which is the technical body for company registration. 

Madagascar provides a range of incentives for investors. These derive principally from the Investment Law. However, they are supplemented by additional legislation including the Free Zones and Free Companies Law and the Law on Large Mining Investments.

The Free Zones and Companies Law provides incentives to national or foreign investors investing in activities geared towards exports (at least 95% of production must be exported).

The regime grants the following:

• Income tax rate: 
  
• 5 year exemption of corporate tax for industrial firms engaged in processing and intensive production, then corporate tax at 10% thereafter.
• 2 year exemption for service sector companies, then 10% thereafter.
• 15 year exemption for all other types of free zone company, then 10% thereafter.
• Exemptions from custom duties and VAT on imports of all inputs (such as equipment, raw materials, construction materials)
  

The following can benefit from the law:

• Industrial processing companies (“entreprises industrielles de transformation” EIT).
  
• Service companies (“entreprises de services” ES).
  
• Basic intensive production companies (“entreprises de production intensive basique” EPIB).
  
• Free Zones (“zones franches” ZF).
  

Investors who want to benefit from those incentives can submit a request for approval to EDBM, after registering online through the MIDAC online portal (Ministries, Departments and Control Agencies or “Ministères, départements et agencies de contrôle” ).

This law supplements the Mining Code and establishes a special regime for foreign exchange, taxation, customs and other elements concerning major mining investments. The law benefits investors, permit holders and industrial processing companies that make large investments in the mining sector (investments of more than 50 billion MGA, approximately 15 million USD). 

Incentives provided by the law include the following:

• 5 year exemption on corporate tax followed thereafter by 25% for mining operations and 10% for processing operations.
  
• International arbitration clause for settling any dispute.
  
• Duty free import of equipment.
  

To benefit from these advantages, investors must obtain investment eligibility certification from the Ministry of Mines. The decision is made by decree of government committee, chaired by the President.

Depending on the sector, the investment may require an Environment Impact Assessment (EIA), integrating socio-economic and environmental issues. Subject to a positive evaluation of the EIA, the National Office for Environment (Office national de l'environnement - ONE) delivers an environmental permit combined with an environmental management plan. 

Investors need to submit an environment impact assessment along with the accompanying forms, which are detailed on the ONE website (see relevant institutions). 

If the documents have been correctly submitted and there are no further questions, processing time is 6 months.

The population is estimated at 24.8 million, formed of 64% living in rural areas and 36% in urban ones. 55.68% are aged between 15 to 64.

The education system in Madagascar is based on the French model.

Primary and secondary education is free of charge. Primary completion rate was 68% as of 2016. Literacy rates for 15-24 year-olds was 71.6% in 2012. 

Tertiary education is also provided by several public and private institutions, the main ones being:

• University of Antananarivo: Medical School, Faculty of Law, Economics, Management and Sociology, Faculty of Sciences, Faculty of Arts and Humanities, École Normale Supérieure, Ecole Polytechnique, School of Agronomic Sciences
  
• Institute of Technology of Antananarivo: Civil Engineering, Industrial Engineering, Engineering of Business and Commerce Management
  
• National Institute for Tourism and Hospitality (INTH)
  
• Institute of Gemology of Madagascar (IGM)

International labour rights are recognized in domestic labour law, with provisions to ensure freedom of association; the prohibition of forced labour, child labour, employment discrimination; and the establishment of minimum wages, as well as weekly work hours.

Terms and conditions of employment may be changed with the agreement of the employee. The law provides workers in the private sector, except for seafarers, the right to bargain collectively.

Employment can include a probationary period of a maximum 6 months renewable once. The duration of the probationary period varies according to the workers' category (5 categories in total) as follows: 

• 3 months for skilled and unskilled blue-collar workers and white-collar workers who do not have managerial responsibilities (cat. 1,2, 3) 
  
• 4 months for engineers, employees with supervisory or managerial functions (cat. 4)
  
• 6 months for high-ranking executives (cat. 5).
  

Beyond the probationary period, the notice period of termination of contract is three months, with the payment of a severance. In general, these payments are calculated at ten days of salary per full year of employment, and are capped at six months of salary. There is no unemployment insurance or other such safety net for workers laid off for economic reasons, aside from the mandated severance pay.

The Labour Law differentiates between firing for cause and lay-offs, and allows employers to adjust employment in light of fluctuating market conditions with the payment of a severance. The requirements are different in case of firing for cause. 

The law establishes labor dispute mechanisms, which proceed progressively from internal negotiation to outside mediation from the Ministry of Labour to arbitration or legal settlement through the competent court.

The Government is charged with setting occupational safety and health standards for workers and workplaces, but penalties for non-compliance are not defined in the labour code, which only requires an inspection before a company can open. The National Fund for Social Welfare, the country’s social security agency, also conducts inspections and publishes reports on workplace conditions, occupational health hazards, and workplace accident trends, though these inspections are also limited by a lack of resources.

The table below shows indicative monthly wages paid by foreign investors, which are significantly higher than the government-set minimum wage of 51 USD per month. The work week is up to six days with a maximum of 8 hours per day.

Prices

Non-wage benefits provided by an employer.

The employer must register workers with a corporate health organization: OSIE, AMIT or FUNHECE.

Every employer must be registered with the National Fund for Social Welfare (CNaPS) for each of its activities. Registration must be made within 15 days after the opening or acquisition of the company, or hiring the first paid staff.

Contributions to the National Fund for Social Welfare (CNaPS) is mandatory, and shared between the employer and the employee. The rates depend on the type of establishment and are presented in the following table.

Social security contributions

JIRAMA (Jiro sy Rano Malagasy) is the main supplier of electricity (as well as water) in Madagascar, but there are other independent power producers. Regulation, control and monitoring of the sector are provided by ORE (Office de Régulation de l’Eléctricité - Electricity Regulation Office). 

JIRAMA's current generation fleet has a total installed capacity of 699 MW. Although Madagascar has a huge potential in hydro-electric generation (7,800 MW of which only 1.6% is exploited), in solar energy (2,000 kWh / m² / year) and in wind energy (2,000 MW), the current production of JIRAMA is largely dominated by thermal source energies. Currently, only 24% of installed power is of hydraulic origin and the remaining 76% is of thermal origin.

In addition, the Rural Electrification Development Agency (ADER) and the National Fund of Electricity (FNE) were created in 2002 to accelerate the electrification of the country, to promote the access to the service electricity base of the rural population, and develop renewable energy sources, including wind, hydro, and solar.

Cost of electricity

The Jiro sy Rano Malagasy (JIRAMA) provides drinkable water services through its management of surface and groundwater resources.

To get a water connection for a new site, application must be made to any of JIRAMA’s business offices. A site inspection follows with an estimate for the required work generated. Service installation follows on payment of the estimate.

Prices

Madagascar is connected to the rest of the world through submarine fibre optic cables: 

• Cable EaSSy connecting 9 countries (available capacity of 166 STM-1, 10,500 km long). 
• Cable lIoN 1&2 linking respectively 3 and 2 countries (capacity of 16 STM-1). 
• Cable Fly/lIoN 3 securing EaSSy and lIoN (in process). 

Four operators are present in this sector: Telma, Orange, Airtel and Blueline. The ARTEC (Autorité de Régulation des Technologies de Communication) or Regulatory Authority for Communication Technologies ensures the regulation, control and monitoring of telecommunications.

Prices

The road network is made up of 5,278 km of national roads, of which 61% are paved.

Madagascar has 12 airports, of which 6 are international and can accommodate variety of large commercial aircraft.

There are 11 seaports, including 5 container terminals, the biggest being Toamasina. The other container terminals are Taolagnaro (the second largest deepwater port in the Indian Ocean region), Toliara, Mahajanga, and Antsiranana. Secondary ports are Nosy-Be, Antsiranana, Manakara, Mananjary, Morondava and Vohémar.

The Maritime and fluvial port agency (Agence Portuaire, Maritime et Fluviale APMF) is the authority responsible for the regulation of the port, sea and river subsector.

Prices

Prices

Madagascar‘s law recognizes private and state land. Foreigners do not have the right to buy land.

Private land can be owned by individuals of Malagasy nationality or companies registered with Malagasy ownership.

The law recognizes the following tenure types. Investors have access to leasehold and concession:

• Leasehold: Landowners are free to transfer their rights by lease. Leaseholds are subject to the terms of the parties’ agreement. Leasing is relatively common, with between 10% and 30% of land leased in cropping. The Investment Law provides foreign investors authorization to acquire real estate property through lease with a maximum, renewable duration of 99 years, so long as the property is solely and continuously used to carry out commercial activity. 
  
• Concession: Concessions can be granted on state land up to a period of 30 years. Concessions are subject to the government’s terms regarding land use and can be revoked for noncompliance.
  
• Sharecropping: An estimated 45% of all tenancies are sharecropping relationships. 
  
• Ownership: Land can be owned by the state, individuals or groups. Landowners have the rights of exclusive possession and use of their land, and land is freely transferrable. Land can be held in ownership if it is titled or the ownership rights of an individual or group are recognized by a land tenure system and can be recorded. An estimated 90% of farmers are owner-operators. The law specifically prohibits the acquisition of land by foreign investors for resale in its original state, or for resale after development.

Prices

To apply for a construction permit, the necessary documents are as follows:

• Alignment: This authorization is mandatory before any application for construction permit, backfill and / or excavation, subdivision;
  
• 5 topographical plans;
  
• 3 plans of the house to build;
  
• 3 layout plans;
  
• 1 legal certificate of less than 3 months;
  
• 1 handwritten request addressed to the mayor and chief of the fokontany.
  

It should be noted that depending on the fokontany (smallest administrative entity), documents may vary. The fee is calculated based on the size of the project.

A newly registered business entity must apply for a taxpayer identification number (NIF), a statistics number from the National Bureau of Statistics (INSTAT) and an RCS number from the Trade and Companies Registry (Registre des Commerces et des Sociétés). Registration is also required with the National Fund for Social Welfare (CNaPS) (see Labour tab).

The fiscal year is the calendar year, but a different cycle may be requested. The taxable basis is income earned in Madagascar. Companies that can be taxed include those incorporated in Madagascar or external companies doing business there.

Taxation is governed by the General Tax Code following the annual finance law.

Taxpayers realizing a turnover under MGA 100 million may choose between the normal tax regime (impôts sur les revenus - IR) and the lower revenue tax regime (impôt synthétique).

Taxpayers realizing a turnover exceeding MGA100 million are subject to the normal tax regime. 

Normal tax regime: Income tax (Impôts sur les revenus – IR)

It is established according to the income or results achieved during the year with bi-monthly or half-yearly installments paid in advance. The rate is fixed at 20% of tax results as defined below:

• Tax result = Accounting result - Tax deductions + Reinstatement of expenses not deductible for tax purposes
  
• Accounting result (net profit) = total income - total expenses
  

Tax deductions include for example all expenses related to any form of health coverage paid by the employer for the benefit of all its employees (see Labour tab). Deductibility is in the limit of 5% of the payroll.

The declaration must be made annually.

Lower revenue tax regime: Synthetic tax (Impôt synthétique - IS) 

It is established according to the turnover, income or gains in a year with payment of half-yearly instalments in advance. The rate is 5% of the overall turnover and must be reported annually, more precisely, by March 31st of the year following the year of the realization of turnover or the acquisition of gross income or gain for all other cases.

Corporate tax

VAT (Taxe à la valeur ajoutée - TVA) is 20% and must be reported no later than the 15th day of the month following the tax period. Exports of goods and services are taxed at a rate of 0%.

All companies with a turnover equal to or more than MGA 100 million are subject to VAT. 

Key products exempt from VAT upon import and sale are:

• materials and inputs for the manufacture of medicinal products and packaging articles exclusively designed for their retail sale;
  
• corrective lenses;
  
• educational and scholarly books, brochures and printed matter (newspapers, etc.);
  
• inputs for agricultural use only;
  
• seed of potatoes or maize, fresh or chilled;
  
• breeding animals, agricultural materials and equipment;
  
• public sports equipment; and
  
• equipment, materials and equipment for the production of renewable energy.
  

Taxes on revenues of movable capital (Taxes sur les revenus du capital mobilier - TRCM) applies to income from movable assets (interest, income and all other income from bonds and loans, etc.). The rate is 20% of revenues of movable capital and its statement must be done annually.

Custom duties indicative rates

Stamp duty (droits d’enregistrement) is applicable in the context of restructuring of the share capital (creation, capital increase, merger, etc.), commercial lease contracts, housing and transfer of ownership of property. 

It is paid within two months after the signing of the contract, and is usually either a fixed duty or a proportional duty depending on the nature of the transaction. The taxable base is the amount provided for in the contract or fixed by the general tax code.

Stamp duty indivative selected rates

Madagascar's legal system is based on French civil law, and its provisions contain protections for private property rights. Local commercial law consists largely of the Code of Commerce and annexed laws, which are reportedly applied in a non-discriminatory manner.

In addition to the freedom of investment and equality of treatment for foreign and national investors, Madagascar's Investment Law includes articles on the protection of patent rights, freedom to transfer funds abroad without prior authorization, protections against expropriation and a stability clause guaranteeing investor privileges from future legal or regulatory measures. There is no legal requirement that nationals own shares of foreign investment, nor any restriction on the mobility of foreign investors.

Madagascar is a mostly liberalized economy with many untapped natural resources. Agriculture, including fishing and forestry, is the mainstay of the economy, accounting for more than one-fourth of GDP and employing roughly 80% of the population. Almost half of the 60 million ha of the country’s total land area is suitable for agriculture, and 18 million ha of arable land is still available. 

Real GDP growth was 4.2% in 2016 and 2017. Driven by the secondary and tertiary sectors, real GDP growth is projected to be 5.2% in 2018 and 6% in 2019.

France remains Madagascar's leading export customer (21.5% of Malagasy exports). Strong export sectors include textiles, essential oils, cloves and vanilla, as well as tourism.

Madagascar benefits from diverse landscapes and climate areas, that have favoured the development of a unique biodiversity, both on land and along the coast, of which 80% of flora and fauna species are endemic.

The cornerstone of the country's tourism offering is its environmental heritage for which the government has introduced a national parks policy designed to include ecotourism projects, with potential for development of eco-lodges and luxury resorts. 

Tourists spend an average of 10 to 20 days in Madagascar. Preferred circuits, usually offering access to both pristine beaches and protected natural areas, are:

• The Northern circuit: from Nosy Be to Diégo Suarez bay, passing through the Ankarana massif, sea and forests attractions. It is well suited to adventure tourism. From Nosy Be, tourists embark on cruises and tours to archipelagoes composed of small islands, for fishing, snorkeling, or diving; and can also explore ylang-ylang refineries and traditional handicraft villages.
  
• The Western circuit: between river cruises, treks and marine excursions, the programme comprises the discovery of the Tsingy de Bemaraha, Belo sur mer, with a highlight being the “path of the baobabs”.
  
• The Eastern circuit: to the lush landscapes of the East, this tour starts with the discovery of lemurs and other rare species of fauna and flora sheltered by the Andasibe forest, then heads towards the Pangalane Canal. This route continues north to the port city of Toamasina and ends on the beaches of the island of Sainte Marie, popular for its whale safaris.
  
• The Southern circuit: crosses the center of Madagascar from Antananarivo to Tulear, offering diverse scenery. It includes forests, the Isalo massif and turquoise blue lagoons with thermal baths, wood carvings, vineyards and national park visits.

Tourist arrivals were 255,460 in 2017. France remains the main source market for Madagascar with 44% of the total international visitors. Tourist numbers are growing at 20% per annum on average, but are limited by the supply of hotels, air connections, tour operators and other services. 

Opportunities for hotel investors and operators are the following:

• Develop eco-lodges and hotels in the vicinity of national parks, as well as other related hospitality services (transports, catering, etc.).
• Develop hotels able to accommodate larger groups along the established circuits.
• Create services related to water sports: surfing, wind-surfing and kite-surfing, sailing, Kerala-style house-boats.
• Develop a leisure marina in or near the ports and other related services.
• Develop MICE related hospitality infrastructure (adequate to accommodate large groups of tourists, such as meetings, conferences, and convention infrastructure and facilities) and other related services (transports and catering for large groups).
• Create adventure tourism related services: rock-climbing, caving, rafting, trekking, trail-biking and paragliding.

Madagascar's mineral wealth includes metals (ilmenite, nickel, zircon and cobalt), precious and semi-precious stones (sapphire, ruby, aquamarine, tourmaline, topaz, amethyst, emerald) and oil. The Law on Large Scale Mining Investments, for investments of 25 million dollars and above provides for investment protections, fiscal benefits and guarantees, including stability in the legal, tax and customs environments. 

Madagascar has set up a mining cadastre to inform potential investors of opportunities in the sector. Madagascar is also a member of the EITI (Extractive Industries Transparency Initiative) process.

Almost half of the 60 million ha of the country’s total land area is suitable for agriculture, and 18 million ha of the arable lands are still available.

Exported agricultural products include spices, vanilla, cloves, tropical fruits (mango, pineapple, passion fruit, lychees, guava and lemon), coffee and cocoa.

Opportunities exist in the following sectors and activities:

• Cultivation, transformation and export of tropical products: moringa, palm oil, coconut, lychee, stevia, other fruits and vegetables (mango, pineapple, passion fruit, lychees, guava, lemon, baobab, coffee, cocoa);
  
• Cultivation, transformation and export of spices: cloves, black pepper, pink pepper, ginger, paprika, curcuma,
  
• Transport (refrigerated containers) and other related facilitation services for exports, certifications and quality control.
  

Currently the demand in electricity exceeds supply, and only 23% of the population has access. Madagascar’s three electricity grids remain unconnected. Production is sourced from thermal (76%) and hydro (24%).

There is a great potential to supply hydro, solar and wind power to replace diesel gensets. Madagascar’s geographical situation is beneficial to exploiting renewable energy: 

• sunny days of 2,800 h/year providing an average of 2,000 kWh/sqm/year.
  
• at 50 m high, a sufficient wind force reaches a speed of 6 to 8 m/s in the North, 6 to 6,5 m/s in the centre and of 8 to 9 m/s in the southern most part. 
  

Additionally, recent legal and institutional reforms have opened up the sector for private investments, including with the provision of 25-year guaranteed feed-in tarrifs.

Fiscal benefits in the sector include:

• Tax reductions of 50% for investments made in the production and supply of renewable energy.
  
• Exemption from duties and taxes on various renewable energy equipment.

• Building and operating wind/solar/hydro electricity farms
• Supplying materials and equipments for independent power producers

Madagascar's textile and apparel sector consists of woven (54%), knitwear (14%), as well as lingerie, embroidery including hand-embroidery, denim, high fashion, fancy dress, medical clothes, work wear, sportswear and specialized apparel using technical fabric. Customers include Gap, Zara, JC Penny, Décathlon, Camaieu, Woolworths, Walmart and Tesco. 

The sector benefits from a skill labour force, plant-based fibre products for the manufacture of textiles, and an attractive geographic location near business platforms in Mauritius and South Africa, which facilitates access to expertise, inputs and logistical support for export, as well as free zones (zones franches) and duty-free access to the EU and US markets.

Opportunities exist in the following sectors, activities and product segments:

• Cut, Make, Trim (CMT) activities.
  
• Manufacture of buttons, closures and labels.
  
• Dyeing, spinning and weaving activities.
  
• Manufacture of plant-based fibre products or other processed products of vegetable and animal origin.
  
• Certification and quality control.

This sector started in the early 1990s, originally in the area of database management. However, the arrival of undersea fibre optic cables have allowed the BPO and call centre sector to become export-oriented.

Call centres can benefit from the small time difference with European and African French-speaking countries. The workforce is also able to speak French without an accent and wages run around 200 USD per month. The BPO sector has benefited from the presence of engineers and technicians (200 graduate a year with a qualification) although there remains a shortage. 

• Strong potential in the sectors of tourism, mining, energy, agro-processing and apparel.
• Diverse landscapes and climate areas with a unique biodiversity.
  
• Preferential market access to the European Union, the United States and Eastern and Southern Africa.
• Liberal investment and fiscal regime.
• Competitive, French-speaking labour force.