Introduction to the Country
One does not like hot, the other does not like cold; make it tepid to make an agreement.
21 000 000
Madagascar is a republican unitary state. The Republic of Madagascar is organized by local authorities Communes which made up the 22 Regions. There is a degree administrative and financial autonomy guaranteed by the Constitution. The President is the Head of State and is elected; the Prime Minister Head of Government and is appointed by the President. Other Government members are appointed by the President on the proposal of the Prime Minister. Executive power is answerable to both Houses of Parliament, Senate. The Judiciary is nominally independent of the first two.
Constitution and Malagasy law, based on French napoleon code in the event of a legal vacuum.
Primary production ranks first in the national economy and employs more than 70% of the population. It is responsible for 80% of export earnings. Export crops include coffee, vanilla (top world producer), sugar cane, cloves, cocoa, cotton, sisal, etc.
The industrialization of the country is hampered by the lack of energy resources and inadequate roads. Industrial activity, mainly limited to processing agricultural products is located in the cities of Antananarivo, Majunga and Tamatave (main commercial port). Industry includes mining, food processing, textiles, glassware, cement factories assembling cars, oil refineries, fertilizers and pharmaceuticals.
The minimum monthly wage in the private sector is less than 30 euros. This cheap labour in Madagascar is attractive to foreign industries looking to relocate. Export Processing Zones (EPZs) have created 100,000 jobs, mainly textiles, and only in the major cities. Textiles have become the biggest net foreign exchange earner in the country, approx 200 million euros per year.
Finance and Tax matters
(a) Financial assistance
(i) Does the concept of financial assistance exist
There are no prohibitions or restrictions on the ability of companies to guarantee and/or give security to support borrowings incurred to finance the direct or indirect acquisition of shares of a Project Company.
(b) Lending restrictions/banking monopolies
(i) Any restrictions applicable to the importation of capital by lenders?
There are no restrictions or requirements applicable to the importation of capital by lenders to the Project.
(ii) Requirement for the lenders/security agent to be registered in the jurisdiction?
There is no requirement for the lenders or security agent to be registered in Madagascar.
(iii) Can foreign lenders lend into the jurisdiction?
Foreign lenders can lend into Madagascar.
(c) Restrictions relating to repatriation of dividends
(i) Are there any restrictions relating to repatriating dividends?
There are no restrictions relating to repatriating dividends. Foreign investors are allowed to freely transfer abroad without prior authorization any payments relating to transactions between other current after-tax profits, dividends, wages, allowances and savings of expatriates.
(i) Are there any restrictions on the convertibility of the jurisdictions currency?
There are no restrictions on the convertibility of Malagasy currency. The project company must respect the Exchange Code (2006-008 dated on 02nd August 2006).
(e) Interest payments
(i) Are there any restrictions on the payment and compounding of interest? If so, does this also affect both local and foreign lenders?
There are no restrictions on the payment and compounding of interest, save that statements showing interest accrued must be in writing.
(i) Are there any withholding tax issues in relation to interest payments and fees to foreign lenders or payments received under any agreements?
There are no withholding tax issues on repayment of interest on loans. There are no withholding issues on repayment of shareholder loans if the loan has been approved in advance by the Government body responsible (FINEX).
(ii) List of double taxation treaties
The Malagasy Government has concluded the double taxation treaties with Mauritius and France.
(iii) Lender issues in respect of tax liabilities/tax domiciliation as a result of providing debt and/or taking/enforcing security interests
There are no particular risks that lenders should be aware of in respect of tax liabilities. The Investment Code provides the equality of treatment between foreign and national companies and this extends to tax liabilities.
The project company is allowed to transfer dividends freely abroad without prior authorization any payments relating transactions Shareholder current account.
(iv) Can loan repayment/enforcement proceeds be treated negatively from a tax perspective for the lenders?
Please contact us for further information.
(g) Stamping costs
(i) Details of stamp duty costs
There is stamp duty of 2% on issued share capital including capital increases.
There is no stamp duty on the transfer of assets.
Registration of Security interests incurs registration fee of 0.5% of the whole secured amount per registration-received amount per registration. Mortgages on land are registered at 1% of the secured amount at the Land services and 2% of the secured amount paid at the fiscal authority.
Security, Enforcement and Insolvency
(a) Overview of security regime
(i) Can a security interest be obtained over a companys assets e.g.:
Debt security, stock in trade, shares of companies and equipment can all be pledged.
Real property can be subject to a mortgage. The right of preference is also, by subrogation, applicable to any insurance on the buildings affected.
(ii) Can shares of a project company validly be pledged and enforced under an English law share charge?
The shares of commercial companies can be pledged and enforced by the Code on Security (law n0 2003-041 of 03 September 2004).
(iii) Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility?
Yes. Enforceability and priority are subject to registration.
(iv) If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?
There are no special laws or regulation relating to a revolving credit facility.
(v) Can the relevant security interests be granted to a security agent or trustee on behalf of the lenders from time to time?
The concept of a security trustee is allowed under Malagasy law. Security generally is governed by the Security Code.
(vi) Please indicate the claims that would have priority over the relevant security interests.
The rank is as follow:
(A) Costs of the liquidation
(D) Security interests
(E) Unsecured creditors
(F) Public registry: please confirm if there is a public registry that can be searched to confirm whether a project company has any security documents or any document dealing with any finance arrangement in place, such as guarantees, indemnities or suretyships given by or for the benefit of a project company.
(vii) Is there a public registry?
Yes, searches are done at the Company Registry or the tribunal.
(viii) Formalities in respect of security registry?
(A) Statutory perfection requirements;
The creation of a security interest is subject to shareholders approvals, and registration with the relevant authorities.
(B) Any other formalities; and
Notarisation is optional but gives additional security.
Notice to creditors is advisable but not mandatory.
(C) Steps for perfection and length of time taken
See above at (A). The whole process from execution to registration lasts 2- 4 weeks.
(D) Any significant financial costs or significant time delays required to create and perfect the relevant security interest?
Yes, Notary fees are high but negotiable. Registration fees are 0.5% of the secured amount without limit.
(b) Insolvency and enforcement regime
(i) Is there a court or similar register that can be searched in respect of proceedings and insolvency actions ?
Yes, searches can be made at the Tribunal and RCS.
(ii) Summary of the different options for an insolvency related process.
Insolvency processes are set out in law n o 2003-042 of 03 September.
There are three steps regarding the insolvency process: the initiation of the reorganisation; the appointment receiver; and the winding-up.
(A) Expedited proceedings: are summary or expedited proceedings available based on the existence of a note, perhaps governed by the laws of the jurisdiction, or is there any other documentation or are there any steps that could be taken to gain the availability of expedited proceedings (or other priority) in the jurisdiction?
(B) Realisation of security registered before a notary is easier and quicker than un-notarised secured /documents.
(C) Governmental or other consents: are any governmental or other consents (consider exchange control and similar regulations) required in connection with:
(D) The enforcement of a security interest in shares;
The enforcement of a security interest in shares needs the Commercial Court consent.
(E) The enforcement of a security interest in other assets; or
The enforcement of a security interest in other assets needs the Commercial Court consent.
(F) The enforcement of a guarantee (sovereign or otherwise)?
The enforcement of a security interest in guarantee needs the Commercial Court consent.
(iii) Are summary or expedited proceedings available?
Lenders inherit all environmental liabilities when they become owners of the shares (MECIE Decree).
(iv) Can security interests be enforced by both private sale and public auction, and is it necessary to appoint a court or other official to carry out the enforcement?
The initiation of the liquidation of assets can only result from a ruling of the Commercial Court, which appoints a trustee to carry out the operation. The sale may take place either by private sale or by public auction (Insolvency Code articles 181, 183, 187).
Corporate, Insurance and Employment matters
(a) Corporate vehicle
(i) Project company incorporation:
(A) Type of corporate vehicle
The most appropriate type of corporation is a Societe Anonyme (SA) similar to an unlisted English public company.
Its key features are:
(I) Liability limited to paid up share capital.
(II) Board of directors.
(III) Managing director with delegated authority.
(IV) Shares can be transferred, sold, or assigned by private treaty.
(B) Issues relating to thin capitalisation
There are ratio issues relating to thin capital depending the company activities.
(C) Requirement to have indigenous shareholdings
There are no limits on shareholdings by foreign investors. A Malagasy Societe Anonyme may be 100% foreign owned.
(I) Thin capitalisation requirements;
Minimum capital requirement for incorporation is MGA 10,000,000 (Approx US$ 2,000).
There are rules that apply to the ratio of equity and debt finance.
(II) Can a limited liability company be established?
A limited liability company can be established either as a Societe Anonyme (above) or as a Societe a Responsabilite Limitee (SARL).
(III) Is it possible to use a foreign company or a branch of a foreign company to act as Project Company?
For large capital projects such as power generation, sponsors are strongly advised to set up a local subsidiary (SA see above). A branch is not appropriate for this type of activity.
(D) Estimated timescale for incorporation in the country. Are there any specific fees or other costs payable to governmental authorities in respect of incorporation?
The estimated timescale for incorporation is 6 weeks from first meeting to receiving the certificate of incorporation from Companies Registry. The approximate cost setting up an SA is US$ 1,750 including disbursements.
(b) General corporate issues
(i) Is a private company free to lend and/or issue guarantees?
A Malagasy private company is free to lend or issue guarantees. Lending money to the public is a regulated banking activity.
(ii) Are there any restrictions on dividend distribution?
There are no restrictions on dividend distribution.
(i) Mandatory insurance: are there any insurances which the project company or the Project is required to have by law (or regulations or similar)?
There is no mandatory insurance set out in the Insurance Code (law no 99-029 dated on 19th August 1999).
(ii) Is there any minimum requirement to place the insurance with local insurers or any other similar restrictions? If so, can reinsurance be lawfully placed internationally?
There is no minimum requirement or any other restrictions to place the insurance with local insurers. The insurance is governed by the code 99- 023 dated on 19th August 1999.
(iii) Are there any restrictions in respect of granting security rights over the insurances or reinsurances?
There are no restrictions in respect of granting security rights over insurance or the reinsurance. Cut through clauses in re-insurance are acceptable.
(i) Legislative/regulatory issues: is there any legislation or regulation impacting on foreign employees, in particular the conditions relating to work and residence permits? Please give an indication of the process and costs in relation to obtaining work and residence permits.
The Labour Code (Law 2003-044 of 28th July 2004) is also applicable to foreign employees. Any foreign employees should have an employment contract with the authorization from the Ministry of Employment which will form the basis of the Foreign employees visa.
EDBM is responsible for issuing foreign employee visas.
(ii) Foreign restrictions: are there any restrictions that apply to foreign employees and foreign contractors/subcontractors and if so what do they need to do in order to comply with local legislation?
There are no restrictions that apply to foreign employees or to the contractors or subcontractors. They must respect the legislation and regulations in force. Efforts must be made to recruit and train suitable local staff.
(a) Land registry: is there a land registry (or similar) in the country that can be searched to confirm whether a project company has granted of any mortgage, charge, option assignment, lien or other encumbrance over the whole or part of the properties or assets of a company?
There is a land registry that can be searched verify the status of real estate.
The Company Registry should be consulted for charges on movable assets.
(b) Landlords rights: please indicate whether there are any rights which accrue to the landlord (or the government or any other bodies) that may override the terms of a land lease or threaten the rights of a project company particularly any right of repossession or acquisition.
A 99- year lease, when registered, gives the lessee an inalienable right on the land concerned. The lease is registrable and can be sold; assigned and dealt with in a way similar to ownership (save the right of the reversion).
(c) Direct agreement: are you aware as to whether a direct agreement in respect of a lease has been previously been provided to lenders on other transactions?
The Malagasy Government has provided direct lease or land access for various projects in Madagascar.
(d) Forfeiture rights: do relief from forfeiture rights exist and would the lenders be entitled to rely on such rights?
There are no special law dealing with this issues.
(e) Is there any additional legislation governing property rights?
Property rights are governed by law 60-146 dated on 03rd October 1960 and the law 2003-029 dated on the 27th August 2006 and land law no 2006-031 dated on 24th November 2006.
Additional laws regarding property rights are: law no 2008-013 dated on 05th January 2009 and law no 2008-014. Property laws are complex and should be addressed on a case by case basis.
(f) Are there any formalities with which lenders need to comply when enforcing security over land?
The lenders need to comply the formalities provide by the Ordonnance no 60-146 dated on 03rd October 1960 and the law no 2003-041 dated on 24th November 2006. Enforcement procedure depends on the nature of the right being enforced.
International law and arbitration
(a) Supra-national treaties
(i) List all Bilateral Investment Treaties to which the country is party.
Madagascar has bilateral investment treaties with France, Germany, China, Mauritius and South Africa.
(ii) Is the country a signatory to the Energy Charter Treaty?
Madagascar is not a signatory to the Energy Charter Treaty.
(i) Requirements and restrictions applicable to the choice of arbitration roles and place of arbitration
A party may seek on injunction from the court even if there is an arbitrator in place. Any application for a hearing on the courts will be rejected and referred to the Arbitral Tribunal.
(ii) Are foreign arbitral awards / decisions are enforceable in the country (i.e. is the country a party to the New York Convention on the Recognition of Foreign Arbitral Awards (the âConventionâ)?
Madagascar is a signatory to the New York Convention of 10th June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.