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  • Issues that Can Impact Your Business When Investing In Africa

Issues that Can Impact Your Business When Investing In Africa

20 June 2016

It is imperative that a number of strategic issues need to be considered from a tax and regulatory perspective early on in the process. For example, it needs to be established whether the South African company has an offshore parent. Should this be the case, then it is unlikely that South Africa will be used as an intermediate holding company jurisdiction as the parent company may be subject to Controlled Foreign Company legislation (CFC), similar to South Africa, so most multinationals avoid multiple-layered CFC regimes and invest directly from the holding structure.

Many funding decisions involve the treasury area and most have tax consequences that should be considered.

The table below highlights some of the issues that impact the funding structure of a locally domiciled investor without a foreign controlling shareholder:

Issues Impacting Your Business

These issues should be considered at the outset to design the optimal structure. Without such consideration, hidden tax and other costs could become due over the life of the investment which will reduce the viability of the project. This may entail constructing a number of hypothetical models to determine the optimal structure for each jurisdiction. It may be beneficial to have one overriding strategic view on how to approach certain funding issues, and to make other issues country-specific tailored to the investment case and the local regulations. Such a model will include a number of variables, and the above list should be a good starting point. Funding agreements should be flexible to cater for a change in the company’s financial outlook, or a change in legislation.