Structuring investments into Africa

Tax is, of course, only one of many elements to consider when planning cross-border investments. Indeed, tax is unlikely to be one of the main factors in deciding whether or not to make an investment in a jurisdiction or whether or not to take on a development project. However, once a decision has been reached to make an investment or carry out a project on economic grounds, the overall profitability of the investment or development can be greatly affected by the structure adopted and its tax treatment.

It is important, therefore, when structuring investments into Africa to ensure that returns to investors do not suffer unnecessary levels of tax. Tax leakage can occur at many points in a structure - on the repatriation of profits from the underlying investment to the intermediate entity, tax at the level of the intermediate entity itself and when profits are repatriated from the intermediate entity to the investor. Each of these stages in an investment structure must be carefully considered to achieve the most tax efficient structure.

Many jurisdictions will levy withholding taxes on distributed profits as well as taxing income and gains received from abroad. These tax charges can cascade, leading to a very large overall effective tax rate if care is not taken. For this reason, it is important for inbound investors to consider carefully the choice of an intermediate holding company.

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