Africa remains one of the best destinations for VC investors and businesses, owing to its large population and emerging economy. Last year alone $1.34 billion was invested in Africa, a significant increase from the paltry $0.5 billion investment recorded in 2018.
Although investment in Africa is relatively low risk, there are several countries that are essentially safe havens for business and investments due to their favourable ecosystem, policies and economy.
Setting up businesses in safe havens guarantees a list of benefits including the lowest available tax income when compared to other countries, little or no taxation on foreign investment, low taxing of patent revenues, financial account privacy, tax holidays etc. Businesses are also able to avoid withholding tax to a degree.
Tax havens also have favourable regulations and general ecosystem that makes starting a business easy and profitable.
Based on research, TechNext curated a list of top 10 safe havens (countries) for businesses in Africa. We examined the country’s rankings in the Corporate Tax Haven Index and World Bank Group Ease of Doing Business report.
For the ranking, we looked at the degree and category of taxation by each country, its degree of financial secrecy and the protection it provides businesses from foreign tax authorities.
Under the doing business report, we looked at how easy it is for businesses to operate in the country based on 11 areas including starting a business, power supply, property registration, getting credit, protecting minority investors, trading across borders and others.
Without further ado, here are the 10 Countries;
Since Mauritius became a tax haven through the enactment of the 1992 Mauritius Offshore Business Activity Act which enabled foreign entities to incorporate companies with a high level of privacy and extremely low or no taxation, it has been criticized for impoverishing African governments and widening wealth inequality.
While this is true, it doesn’t remove the fact that the country is a perfect safe haven for businesses in Africa. Located on an Island on the East of Africa, Mauritius is ranked 14 in the global Corporate Tax Haven Index. This makes it the best tax haven on the continent.
To add to that, the country also ranked 20th in the World Bank Group Global Ease of Doing Business Report. With a score of 79.58, Mauritius proves itself as a top spot for businesses in Africa.
However, while it’s profitable to establish a business in the country, its reputation as a tax haven draws the ire of foreign authorities on companies based in its region.
Rwanda is one of Africa’s fastest-growing economies with yearly growth averaging more than 6%. The world Bank’s Doing Business 2019 report ranked the country 29th, highlighting the ease of starting a business.
In 2019, Rwanda replaced its stifling special billing machine system for value-added tax invoices with free software that allows taxpayers to issue value-added tax invoices from any printer.
Although the country wasn’t ranked in the global Corporate Tax Haven Index, its high score of 77.88 in the ease of doing business report makes it a top pick for doing business in Africa.
3. South Africa
South Africa is Africa’s second-largest economy. It has one of the easiest business ecosystems on the continent with advanced legal and financial structures to help business stand firm. It ranked 82 on the World Bank’s ease of doing business report, scoring 66.03 to be one of the top 5 picks to launch a business on the continent.
Apart from the ease of doing business, South Africa has policies that give businesses the opportunity to pay lower taxes according to the global Corporate Tax Haven Index. The country was ranked 42nd in the Global Tax Haven report.
Besides being a tourist hot spot, Seychelles is a good place to start a business. The country ranks amongst the top 100 easiest countries to do business in. Considering the major factors like regulations and resources to help a business grow, Seychelles scored 62.41.
The country also has a reputation for being a tax haven. In the Corporate Tax Haven Global Index, Seychelles ranked 44 with a score of 68 out of 100 making it a good place for businesses to make profits without paying huge taxes.
Kenya is East Africa’s leading regional hub for ICT and financial services. The country’s internet growth together with the ease of getting credit and starting a business ranked it 61 globally ahead of Nigeria.
Kenyan government introduced a new law which improved the ease in accessing credit for businesses.
Apart from good credit ratings, Kenya also has low tax compared to other countries. It ranked 58th in the global Corporate Tax Haven Index.
Botswana operates on a territorial basis. This means that companies in Botswana pay tax only on income that is derived from a source in the country. This makes it possible for a business with a presence outside the country to make money without having to pay tax.
Due to this policy among others, Botswana was ranked 56th globally in the Corporate Tax Haven Index. Also, the country made it to the top 100 companies with the best ease of doing business. Botswana scored 65.40 making it a good choice when deciding a base for African businesses.
As of 2017, Ghana was ranked the third-largest tax haven in Africa. Now, it’s no longer in the top 5 but still has some of the benefits like reduced taxes that businesses enjoyed. The Corporate Tax Haven Index ranked the country as 60th in the world.
Apart from a good tax rating, the World Bank’s doing business report says Ghana has above-average ease of doing business with a score of 59.22. This was mainly due to the simplified process of importing which the country recently adopted.
In the past, Tanzania served as an attractive destination for foreign organisations to stash away their wealth without paying taxes. Today some of the laws that made the country a tax haven for billionaires are still available and can be utilised by businesses. The Corporate Tax Haven Index ranked the country as 62nd in the world.
The ease of doing business in the country is quite fair and the inadequacies can be filled with the added benefit of low taxes. The World Bank’s Doing Business 2019 global report places Tanzania at 144.
9. The Gambia
Although there are several other countries with easier business environments, the Gambia makes the list because it offers very low tax rates to businesses. The Corporate Tax Haven Index ranked the country as 63rd in the world just after Tanzania.
The ease of doing business in the country was still ranked above average at 149.
Liberia has for years been a safe haven for investors and businesses trying to avoid tax. The country is connected to the popular Panama Papers scandal and has on several occasions been blacklisted by countries.
However, the tax laws which led to this bad reputation can significantly be of help to businesses. The Corporate Tax Haven Index ranked Liberia as
57th in the world.
While Liberia’s haven index score is high enough to rank 7th, the below-average ease of doing business in the country drops it to 10th. The country ranks 174 in the World Bank’s ease of doing business report.
African countries are among the fastest-growing economies in the world. However, while the capital flows to tax havens are one factor limiting the benefits of economic growth, it also provides a perfect safe haven for businesses to thrive.
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