Steps to Create a Company in Madagascar

Setting up a company in Madagascar involves several steps, from choosing the right name and structure to ensuring compliance with local regulations. Here’s an overview of the main steps required to form a business in Madagascar:

1. Choosing the Company Name and Legal Structure

The first step in creating a company in Madagascar is choosing a unique company name. The name must not be already registered by another entity, and it should comply with the naming conventions outlined by the Economic Development Board of Madagascar (EDBM). You can check the availability of a business name through the EDBM or its online portal. Additionally, it’s important to select the appropriate legal structure for your company, with options including:

• Limited Liability Company (SARL): Most common and recommended for small to medium-sized businesses.
• Société Anonyme (SA): Ideal for larger businesses, particularly those planning to raise significant capital.
• Free Zone Company: Specifically for businesses that operate in export sectors with tax incentives.

The right legal structure depends on your business size, liability preferences, and growth expectations.

2. Registered Office and Legal Address

All companies in Madagascar must have a physical address in the country. This address will serve as the company’s official legal domicile for receiving government correspondence. If you don’t have a local office, you can opt for a domiciliation service, which provides a formal address for legal purposes without requiring a physical presence. Additionally, companies must appoint at least one local representative who resides in Madagascar. This person can act on behalf of the company in legal and administrative matters.

3. Information Required for Registration

To register a company, you will need to provide specific details about the company and its stakeholders. The following information is typically required:

• Details of shareholders and directors: Including full names, addresses, and identification.
• Company structure: Shareholding distribution, voting rights, and roles within the company.
• Registered office address: The physical location of your business within Madagascar.
• Local representative: Information about the individual representing the company in Madagascar.

The registration process is typically handled through the EDBM’s one-stop shop, streamlining the procedure for entrepreneurs.

4. Legal Documents to Submit

Once the information is compiled, you’ll need to prepare the necessary legal documents to complete the registration. These include:

• Articles of Association: Detailing the company's governance and shareholder responsibilities.
• Memorandum of Association: Outlining the company’s objectives and formal agreements between shareholders.
• Statistical registration (INSTAT) and tax registration forms.

These documents must be submitted to the EDBM along with the appropriate fees. The registration fees include commercial registration (approximately MGA 16,000), statistical registration (MGA 40,000), and the publication of a notice of incorporation in a French-language newspaper. The cost of the publication varies based on its size, but it is typically around MGA 40,000.

5. Timeframe for Company Incorporation

The process for incorporating a company in Madagascar is relatively quick, taking between 2 to 4 weeks depending on the complexity of the application and the accuracy of the provided documentation. Once the incorporation is complete, you will receive a Certificate of Incorporation, which serves as proof of your company’s legal status.

6. Post-Incorporation Procedures

After your company has been registered, there are additional steps required to ensure full compliance with Madagascar’s laws:

• Opening a Bank Account: While not mandatory, it is recommended to open a corporate bank account in Madagascar to manage company finances. A business plan may be required by the bank to open the account.
• Registering with Tax Authorities: Once incorporated, your company must be registered for tax purposes, and a tax identification number (NIF) will be issued. This step is necessary even if the company is not immediately operational.
• Social Security Registration: You will need to register your employees with the National Social Security Fund (Caisse Nationale de Prévoyance Sociale - CNAPS), which provides health insurance and social benefits. Registration with OSTIE (a public health insurance program) is mandatory, although companies may opt for private insurance as an additional service.

Corporate Taxation in Madagascar

Madagascar’s tax system is designed to support a range of businesses, with varying tax obligations depending on company size, sector, and turnover. Here’s an overview of the key taxes businesses face in Madagascar in 2024:

1. Corporate Income Tax (CIT)

The Corporate Income Tax (CIT) in Madagascar operates under two primary regimes:

• Standard CIT (20%): Companies with an annual turnover exceeding MGA 400 million are subject to a standard 20% CIT on their net profits. This applies to most businesses, particularly those with significant revenue streams.
• Synthetic Tax (IS): For smaller individuals companies with turnover less than MGA 400 million, the synthetic tax regime applies. This is a simplified tax system where businesses are taxed at 5% on 70% of their turnover, with minimum tax rates ranging from MGA 16,000 to MGA 150,000 depending on the business type. This tax regime is designed for smaller enterprises and provides a lower administrative burden by combining aspects of income tax and VAT into a single tax.
  

2. Value Added Tax (VAT)

VAT in Madagascar is applied to most goods and services and follows a similar structure to that found in many other countries:

• Standard VAT Rate (20%): This rate applies to most goods and services, ensuring a broad tax base.
• Reduced VAT Rate (5%): Certain products, such as butane gas, benefit from a reduced rate of 5%, making essential goods more affordable for consumers.
• Exports: Madagascar follows the international standard of 0% VAT on exports, encouraging businesses to engage in global trade without facing local tax burdens on outbound goods​.

Businesses with a turnover exceeding MGA 400 million must register for VAT. Those below this threshold may opt for the synthetic tax, which simplifies compliance for smaller businesses by integrating VAT obligations.

3. Other Taxes

Companies operating in Madagascar are also subject to several other tax obligations:

• Social Security Contributions: Employers must contribute to social security, which covers health insurance and pensions for employees. The rates depend on the employee's salary and apply to all businesses with formal employees.
• Professional Taxes: Companies must also pay professional tax, which varies based on the size, sector, and location of the business. This tax is used to fund local infrastructure and services​.
  

4. Tax Incentives for Free Zones

Madagascar offers considerable tax incentives to companies operating in free zones or those primarily involved in export activities:

• Corporate Tax Exemption: Companies in free zones benefit from a five-year exemption from Corporate Income Tax, which significantly reduces the initial tax burden for new businesses. After the five-year period, a reduced 10% CIT rate applies.
• VAT and Customs Duty Exemptions: Free zone companies also enjoy VAT exemptions on local purchases and customs duty exemptions on imports necessary for their operations. This makes it easier for export-oriented companies to minimize operational costs and reinvest profits into business expansion​.

Madagascar’s tax system, while offering a competitive corporate tax rate of 20% for large businesses, provides significant relief for smaller businesses through the synthetic tax regime. Coupled with VAT exemptions for exports and incentives for free zone companies, Madagascar remains an attractive destination for foreign investors. Businesses should stay informed about their specific tax obligations and the incentives available to optimize their tax liabilities and remain compliant.

Director Responsibilities in Madagascar

When establishing a company in Madagascar, both directors and shareholders play critical roles in managing the company’s affairs and ensuring compliance with legal obligations. Here’s an overview of their key responsibilities, the consequences of non-compliance, and the procedures for appointing or removing a director.

1. Legal Duties of Directors

In Madagascar, directors have a range of legal obligations to ensure the smooth operation and integrity of the company. Their responsibilities include:

• Duty of Loyalty: Directors must act in the best interests of the company, prioritizing its well-being over personal gain. This includes making decisions that benefit the company and its stakeholders, rather than themselves.
• Management of Company Assets: Directors are responsible for managing and safeguarding the company’s assets. This means ensuring that the company's resources are used efficiently and for legitimate business purposes.
• Legal Compliance: Directors are also required to ensure that the company complies with all applicable laws and regulations in Madagascar, including tax obligations, labor laws, and reporting requirements.

Failure to uphold these duties can result in personal liability for the director, especially if the company suffers financial losses due to their negligence or misconduct.

2. Sanctions for Non-Compliance

If directors fail to fulfill their responsibilities, they may face several consequences:

• Personal Liability: While shareholders benefit from limited liability, directors can be held personally liable if they fail to meet their obligations. For example, if they engage in fraudulent or illegal activity, or if they continue trading despite knowing the company is insolvent, they could be responsible for the company's debts.
• Fines and Penalties: Directors can be fined for non-compliance with legal requirements, such as failing to submit necessary reports or violating corporate governance rules.
• Disqualification: Directors who are found to have engaged in serious misconduct can be disqualified from holding future directorships. This prevents them from managing or directing other companies for a specified period.

Moreover, Malagasy law provides for additional sanctions, such as criminal prosecution, in cases of fraudulent behavior or gross negligence.

3. Appointment and Resignation of Directors

The process of appointing or removing a director in Madagascar is governed by the company’s Articles of Association and Malagasy corporate law:

• Appointment: Directors are typically appointed by a general meeting of shareholders. The Articles of Association may specify the number of directors and the duration of their terms. When a new director is appointed, the company must update its corporate records and notify the relevant authorities.
• Resignation: Directors may resign at any time, provided they follow the process outlined in the company’s governing documents. The resignation should be formalized in writing and communicated to the company’s board. After a director’s resignation, the company is responsible for notifying the appropriate government bodies to ensure the corporate records are updated accordingly.
• Removal: A director can be removed by a majority vote of the shareholders, as outlined in the company’s Articles of Association. In certain circumstances, the board may have the authority to temporarily appoint a new director to fill a vacancy until the next general meeting.

Ensuring proper procedures are followed for both the appointment and removal of directors is crucial for maintaining transparency and legal compliance.

Directors in Madagascar hold significant responsibility for the management and legal compliance of their company. They must act in the company’s best interest, adhere to local laws, and safeguard the company’s assets. In cases of misconduct or negligence, directors face serious consequences, including personal liability and potential disqualification. Proper governance, including the structured appointment and removal of directors, ensures the long-term success and legal stability of the company.

By adhering to these responsibilities and ensuring compliance, directors and shareholders can contribute to the success of their business in Madagascar’s dynamic business environment.

Employment and Human Resources Management in Madagascar

Managing human resources in Madagascar involves several specific legal requirements and processes that companies must follow to remain compliant. This section outlines the key areas of employment law, contracts, work conditions, and international recruitment procedures that businesses need to be aware of.

1. Employment Contracts

In Madagascar, there are two main types of employment contracts: fixed-term contracts (CDD) and indefinite-term contracts (CDI). Both contract types must be clearly defined in writing, either in French or Malagasy, and should include details such as the job description, salary, working hours, benefits, and termination conditions.

• Fixed-term contracts (CDD): These are generally used for temporary, project-based, or seasonal work. A CDD has a maximum duration of two years and can only be renewed twice. After two renewals, or if the employee is rehired within one month of the contract's expiration, it automatically converts into an indefinite-term contract.
• Indefinite-term contracts (CDI): The most common form of employment, a CDI continues indefinitely until either party terminates it, following appropriate notice periods.

Both contract types are governed by strict labor laws to protect both employers and employees, including provisions for probation periods of up to six months, which may be renewed once.

2. Work Regulations

Madagascar’s labor laws provide clear guidelines on working hours, compensation, and employee rights:

• Working Hours: The standard workweek in Madagascar is 40 hours, typically spread across five days. Employees are entitled to at least one day of rest per week, usually Sunday. Any work beyond the standard hours is considered overtime, which is compensated at a higher rate: 30% more for the first eight hours and 50% for any additional overtime.
• Minimum Wage: The minimum wage in Madagascar, as of 2024, is 200,000 MGA per month. This wage applies to general employees, while workers in agriculture may have slightly different rates depending on the sector.
• Employee Rights: Employees are entitled to 30 days of paid annual leave after 12 months of service, as well as sick leave and maternity leave. Maternity leave lasts 14 weeks, with 50% of the wages paid by the employer and 50% by the national social security system. Employees also contribute to the social security system, which covers health insurance, pension, and disability benefits.

3. Recruitment and Management of International Talent

For businesses looking to recruit foreign talent, Madagascar offers a variety of work visas:

• Work Visa: Most foreign employees will need a transformable visa, which allows for a 30-day stay during which the employee can apply for a long-term work visa. To obtain a work visa, companies must provide several documents, including the employee's stamped employment contract, proof of the company’s registration, and a work permit issued by the Ministry of Public Service, Labor Administration Reform, and Social Laws. This process allows foreign workers, such as executives, managers, and skilled workers, to legally work in Madagascar.
• Visa Categories: There are several visa categories available, including those for investors, executives, and employees, each with specific documentation requirements. Employers play a crucial role in securing the necessary work permits and ensuring compliance with local immigration laws.

Navigating Madagascar’s employment laws requires a solid understanding of the legal framework surrounding contracts, employee rights, and international recruitment. By adhering to these regulations and ensuring proper documentation, companies can successfully manage their workforce in Madagascar while staying compliant with local laws.