Global Tax Strategies for African Investors

Africa remains a net outbound market for investment migration for several reasons. Despite its many attractions, few African countries actively encourage foreign investors to relocate, whether through linking investment to obtaining residence rights or offering tax incentives. Moreover, with many African passports not being particularly powerful, wealthier Africans are increasingly acquiring citizenship elsewhere.

It’s easy to assume that foreign investors are primarily seeking low taxes. But what they value just as much are clarity and transparency, along with fairness. The best tax systems for attracting investors are those that allow income and capital from outside the country to be excluded from local taxation during that initial investment phase. Later, if they choose to settle and make their home there, they can then opt into the full tax regime once the investment has proven successful — or at least, when its outcome is clear.

And so, as Africa looks to upgrade its infrastructure, creating an investor-friendly tax regime should be a central part of its development toolkit.

Tax, Public Services, and the Investor Equation

In today’s world, it’s easy to overlook that taxes fund public services. Any debate that laments declining service quality while calling for lower taxes contains an inherent paradox. The uncertainty over whether higher taxes will lead to better services may partly explain this tension.

For inbound investors to Africa, it is unlikely they will personally use many — if any — public services. However, their employees probably will, making it essential to strike the right balance in tax policy.

With the abolition of much USAID funding — a shift that has hit several African states particularly hard — the relationship between what the state can provide and what may have been ‘outsourced’ to charitable donors and development finance is changing significantly. This makes the tax debate more important than ever, as countries will need to take greater ownership of their social programs in coming years.

Many African nations already have relatively high tax rates, at least for those earning enough to pay them. Yet unreliable public services may mean that essentials such as education and healthcare must still be funded from after-tax income.

For wealthier households, moving a family to a country where taxpayer-funded services such as quality schools and hospitals are readily available can make a big difference. Such services also encourage capital to remain within a country.

Several countries attract investment by offering low income tax rates or preferential tax regimes for newly arriving foreign nationals, sometimes lasting up to 10 years. When these incentives are paired with reliable public services, they can make a country a highly appealing destination for relocation.

Tax Residence Status and Conditions

The right to residence or citizenship in another country does not automatically lead to someone moving their tax residence. In most jurisdictions, tax residence is determined by physical presence — typically, spending more than 183 days in a country during the tax year — which usually makes the individual liable for tax on their worldwide income. Those who spend less time are considered non-residents and are only subject to tax on income sourced within that country, unless they relocate their permanent home there.

Tax residence only moves when the taxpayer does, and so for many wealthy Africans, acquiring a second or third residence is just the first step — an option to leave the country should conditions at home change too quickly or unfavorably. Only once the move occurs does the tax consequence arise, making it essential to understand the net consequence in advance. Fortunately, in many popular investment migration destinations, that impact would mean a lower tax burden than remaining in Africa.

Navigating Tax Systems in a Mobile World

However, that’s only part of the story. Anyone planning to emigrate must also understand how their home country’s tax authorities treat such a move. Some, such as South Africa, look to levy an ‘exit charge’ so that any accumulated but untaxed gains are taxed at the point of exit as if the assets were sold on the day of departure. This can seriously compromise any tax-driven emigration strategy where there is a significant asset base — especially if those assets are illiquid, such as shares in a family business or a tech start-up, leaving little or no cash available to settle the tax bill.

Once free of the tax net, countries like Singapore and the UAE might allow significant tax-free wealth accumulation during periods of residence. And places like Greece and Italy with a flat, maximum tax provide the clarity and certainty that families and investors are looking for. This creates long-term flexibility and opportunities to pay for the next generation to study abroad or to retire elsewhere later.

Some of the Caribbean countries that have favorable tax regimes for foreign investors have used citizenship by investment to attract international funding for emerging industries, whether tourism or technology. In the longer term, as African countries look to expand their economies from natural resources and pockets of tourism, they may also become magnets for investment migration to fund that infrastructure. This kind of venture would require an investor-friendly tax system for optimum effectiveness

As Africa’s wealth continues to move, encouraging investment will continue to be important — and encouraging migration will be a key part of sustaining the momentum.