Investing in São Tomé and Príncipe: the legal framework

Investment Thresholds and Regimes

The investment framework operates on a tiered system based on project value, with different incentive levels corresponding to investment size:

Minimum Threshold: To qualify for guarantees and tax incentives, investments must equal or exceed €50,000. This relatively low barrier makes STP accessible to small and medium-sized investors, not just major corporations.

Three Investment Regimes:

1. Simplified Regime (€50,000 to €249,999): Projects receive 50% of the incentives described in the Tax Benefits Code
2. General Regime (€250,000 to €4,999,999): Full access to standard incentives
3. Special Regime (€5,000,000 or more): Maximum incentive package with negotiated terms

To access these benefits, investors must enter into an Administrative Investment Contract (AIC) with the state. This contract requires several elements: investors must possess at least 20% of the proposed capital available, demonstrate stable financial standing, present clearance certificates showing no debts with the state or social security, and provide a feasibility study demonstrating job creation and social responsibility.

Core Investment Guarantees

The Investment Code provides fundamental protections that address investors' primary concerns:

Equal Treatment: The law guarantees non-discriminatory treatment between nationals and foreigners, regardless of capital origin. Importantly, there are no legal restrictions on foreign ownership of São Toméan companies—100% foreign ownership is permitted in most sectors.

Expropriation Protection: The state guarantees that investment assets will not be nationalized, expropriated, or requisitioned except for weighty public interest reasons. Even then, fair, prior, and effective compensation must be paid.

Management Autonomy: Public non-interference in private enterprise management is guaranteed, except in cases expressly provided by law.

International Arbitration: STP is a signatory to the ICSID Convention (Washington Convention of 1965) and the New York Convention on arbitration, providing independent dispute resolution mechanisms and reducing political risk.

The Tax Incentive Package

São Tomé and Príncipe offers one of the more generous tax incentive structures in Africa, particularly for priority sectors:

Corporate Tax Rate: Reduced from 45% to a flat 25% on taxable income—competitive by regional standards.

Tax Holidays: Up to 10 years of tax exemption for investments in priority sectors including tourism, agriculture, renewable energy, education, and health.

Import Duty Exemptions: Total exemption from import duties on machinery, equipment, and raw materials for new activities or expansion, provided these goods are not locally produced or don't meet required quality/price standards.

Accelerated Depreciation: Permitted for investment assets in strategic sectors, improving cash flow in early project years.

Training Deduction: Investment costs for professional training of São Toméan workers are fully deductible from taxable income.

Reinvestment Benefits: Profits authorized for transfer abroad but kept as company reserves benefit from income tax exemption.

Irrevocability: Critically, the right to enjoy granted tax incentives is legally irrevocable for the concession duration unless serious legal offenses are committed.

The standard Value Added Tax (VAT) rate is 10% (though some sources indicate 15% was introduced in 2023, with 7.5% for basic food items). Certain activities like insurance and financial intermediation are VAT-exempt.

Capital Repatriation: Rights and Risks

The legal framework guarantees the right to transfer funds abroad—a cornerstone protection for foreign investors. Once projects are implemented and applicable taxes paid, investors have guaranteed rights to transfer:

• Dividends and distributed profits
• Proceeds from liquidation (including capital gains)
• Royalties and licensing fees

Critical Caveat: These transfer rights are subject to compliance with applicable foreign exchange legislation. Historically, some regulations limited transfers of after-tax profits to an annual percentage of 15% of foreign capital invested. More importantly, the effective transfer of profits depends on foreign exchange availability in the banking system.

This represents a real risk. STP faces chronic foreign currency (forex) liquidity constraints, meaning that even with legal rights to repatriate funds, actual transfers may be delayed or complicated by forex shortages. Investors must rely on guarantees specified within their Administrative Investment Contract to mitigate this risk, and should negotiate specific forex provisions during contract discussions.

The New Dobra (STN) has been pegged to the Euro since 2010 at a fixed rate of 24.5 STN per 1 EUR, providing currency stability but limiting the Central Bank's independent monetary policy.

Streamlined Business Registration

STP has made genuine progress in reducing bureaucratic barriers through the One-Stop Shop (Guiché Único - GUE), a centralized service for company incorporation:

Registration Timeline:

• Normal process: 1 to 5 business days
• Expedited (urgent) process: 24 hours

Registration Costs: Approximately STN 3,165 to STN 10,190 (roughly $130 to $456), depending on entity type and urgency.

Investment Certificate (CRIP): Once a project is approved, the Investment and Export Promotion Agency (APCI) issues a Certificate of Registration of Investment (CRIP) within 3 days. This certificate confirms investor rights and duties, serves as the basis for accessing incentives, and provides standing for dispute resolution.

While these timelines represent significant improvement, practical experience suggests that document processing can still be lengthy, and the GUE primarily functions as a submission point rather than true one-stop processing. Investors should plan accordingly and consider engaging local legal counsel to navigate the process.

Sector-Specific Investment Data

Understanding the current state of priority sectors helps contextualize opportunities:

Tourism:

• Contributes 11-15% to GDP (figures vary by year between 2017-2024)
• International arrivals: approximately 30,000-41,000 annually
• Foreign revenue: $53.8 million (2017)
• Tourist tax: €3 per night for the first 12 nights (Tourism Fund)
• Príncipe accommodation represents 22% of national capacity

Renewable Energy:

• Current mix: 92.4% thermal (diesel), 7.6% hydropower
• Total installed capacity: 19.85 MW
• National target: 50% renewable energy by 2030
• Required private investment: $190 million (about 64% of total needed)
• Solar potential: approximately 4 kWh/kWp for photovoltaic development

Fisheries:

• Contributes 3.7-4% to GDP
• Provides 75% of animal protein consumed locally
• Employs 15% of active workforce (nearly 30,000 people)
• EEZ: 160,000 km² (160 times larger than landmass)

The Citizenship by Investment Program

In August 2025, STP launched one of the world's most accessible Citizenship by Investment (CBI) programs (Decree-Law No. 07/2025):

Minimum Investment: $90,000 non-refundable donation to the National Transformation Fund (NTF) for single applicants

Processing Time: Typically 6 weeks from submission to citizenship approval

Fund Purpose: Capital supports infrastructure modernization, education, healthcare, and economic diversification

Early Results: Within two months of launch, 50 international applications were registered

This program represents an innovative approach to generating immediate foreign capital without incurring debt, though investors should conduct thorough due diligence on program legitimacy and long-term value.

Critical Challenges and Risk Factors

Modern legislation alone does not eliminate the practical challenges of investing in a small island developing state. Several constraints require careful consideration:

Financial Sector Weaknesses

Doing Business Ranking: STP ranked 170th out of 190 economies in the World Bank's Ease of Doing Business Index (2018), having declined from 160th in 2015.

Getting Credit: Ranked 185th globally, with a score of 0 out of 12 on the Strength of Legal Rights Index. This indicates extremely weak legal protections for creditors.

MSME Financing: Only 7% of small and medium enterprises have bank loans, despite MSMEs dominating the private sector. The estimated financing gap for MSME lending is approximately $47 million.

Secured Transactions: The legal framework is fragmented and obsolete, based on outdated Civil and Commercial Code provisions. No centralized electronic registry exists for security interests in movable property, so lenders strongly prefer real estate collateral.

Contract Enforcement

Enforcing Contracts: STP ranked 185th out of 190 economies on this critical indicator, with average contract execution time of 62 days. This low ranking indicates that the primary investment risk is often institutional and judicial execution capacity, not the quality of written law itself.

Land Administration Issues

The land framework presents particular uncertainty:

• Foreigners cannot own state land but can lease it for up to 20 years with automatic renewals
• Regular foreign nationals' land ownership is limited to two hectares, though exceptions exist for approved agricultural and tourism projects
• Some foreign investors have received full ownership of state properties in specific cases, though this is rare
• Ambiguous policies regarding foreign concessions—particularly unclear maximum size and duration—create uncertainty that can deter long-term investment

Macroeconomic Constraints

GDP: Approximately $600 million (2023), with per capita income around $2,949—lower-middle-income country status

Fiscal Dependence: Heavy reliance on Official Development Assistance, which averaged 41.1% of total revenue between 2000-2022

Tax Collection: Weak domestic revenue collection, with tax-to-GDP ratio at approximately 15% (below sub-Saharan average of 20%)

Public Debt: Estimated at approximately 90% of GDP

Sector-Specific Governance Issues

Extractive Industries: STP has progressive oil revenue management legislation (Oil Revenue Management Law of 2004) establishing the Permanent Fund of São Tomé and Príncipe. However, the country has been temporarily suspended from the Extractive Industries Transparency Initiative (EITI) since October 2022, with suspension extended through April 2024 due to implementation failures, particularly concerning the Nigeria-STP Joint Development Zone.

Fisheries: While STP became a candidate member of the Fisheries Transparency Initiative (FiTI) in December 2023, assessments indicate clear need to improve public access to fisheries management information.

Infrastructure and Development Needs

The country requires massive infrastructure investment to achieve development goals:

Total Financing Needs: Approximately $2.7 billion by 2063 for major infrastructure including deep seaport, clean energy, roads, and water/sanitation

Priority Projects:

• Deep-water port expansion and modernization
• Airport improvements (particularly Príncipe airport for tourism)
• Road and bridge networks
• Digital connectivity (fiber optics and broadband)
• Renewable energy infrastructure

Many large infrastructure projects operate under the Public-Private Partnership (PPP) framework (Law No. 06/2018), which established the Technical Support Unit for PPPs (UTAP) and provides for a PPP guarantee fund to ensure fulfillment of state financial obligations.

Strategic Recommendations for Investors

Given this complex landscape, successful investment in São Tomé and Príncipe requires:

1. Thorough Due Diligence: Engage experienced local legal counsel to navigate both formal law and practical implementation
2. Negotiate Comprehensive AICs: Use the Administrative Investment Contract to secure specific protections beyond standard legal guarantees, particularly regarding forex access and dispute resolution
3. Plan for Extended Timelines: Despite official registration speeds, expect longer timelines for actual project implementation due to infrastructure constraints and administrative capacity
4. Structure for Local Benefit: Given the emphasis on job creation and social responsibility, structure investments to demonstrably benefit local communities through employment, training, and capacity building
5. Focus on Priority Sectors: Align investments with government priorities (tourism, renewable energy, agriculture, fisheries) to maximize incentive access
6. Prepare for Financing Challenges: Given weak local credit markets, plan to bring most project financing from external sources
7. Consider PPP Structures: For large infrastructure projects, explore PPP frameworks that provide clearer risk-sharing with government

summary

São Tomé and Príncipe has created a genuinely progressive legal framework for investment, with low entry thresholds, substantial tax incentives, strong protective guarantees, and streamlined registration procedures. The country's small size, political stability, and commitment to sustainable development create opportunities for investors seeking first-mover advantages in underexplored markets.

However, the gap between legal rights and practical implementation remains significant. Weak financial infrastructure, limited contract enforcement, forex constraints, and land administration ambiguities create real risks that modern legislation alone cannot eliminate.

The investment case is strongest for patient, well-capitalized investors in priority sectors who can structure projects to align with national development goals while building in substantial buffers for implementation challenges. Those approaching STP with realistic expectations about frontier market constraints—and willingness to invest in local relationships and capacity—can find genuine opportunities in this unique Atlantic archipelago.

For the right investor profile, São Tomé and Príncipe offers not just financial returns but the opportunity to participate in building economic foundations in one of Africa's smallest and most peaceful nations.