Expatriate tax in Africa : the taxation of inbound Expatriate working in Botswana, Namibia, Nigeria and South Africa

Abstract

The growth in multinational corporations looking to expand and invest in foreign countries, particularly in the emerging markets such as Africa, has grown tremendously. “Africa is already the world’s second fastest growing economy after expanding 5% a year in the past two years, well above the global average.” (World Economic Forum, 2013). This has resulted in the movement of human capital between different tax jurisdictions and an increase in expatriates all across the world.

The focus of the study is to expand on the current knowledge on the taxation of inbound expatriates working within South Africa, Botswana, Namibia and Nigeria, as the world has turned its focus on Africa in terms of investment and expansion, as supported by Shelley (2004:3), and to provide both employers and employees with knowledge of the different tax regimes (source-based taxation and residence-based taxation) found in some of the emerging and fastest growing markets in Africa: namely Botswana, Namibia, Nigeria and South Africa.

It was found that the African tax landscape provides for a vast range of tax systems, of which, most are either residence–based or source-based. The tax systems of South Africa and Nigeria are similar in that they are residence-based. In each of these two countries, tax residents are taxed on their worldwide income, while non-residents are only taxed on income from specific sources. Therefore, residency is an essential concept in each of these tax systems. The above-mentioned countries, however, apply different methods and factors in determining the concept of residency.

As a result of the difference in determining tax residency and differences in their domestic income tax legislations, the taxability of income earned abroad differs in these countries.

The tax systems of Botswana and Namibia are similar in that they are source-based. In each of these countries, income is taxable when it is from a source or deemed source within these countries. Although in exceptional circumstances, some income which is not from a source within these countries may be taxable, relief is applied in terms of the domestic legislation, in order to lessen the burden of tax. Source is therefore a vital concept in each of these tax systems. The definition and application of the term source is different in both countries. However, similarities are found in that the source is primarily where the services were physically rendered.

Both employers and employees should consider the basis of taxation (source basis and residence basis) that is applied by the prospective host country when making a decision regarding an assignment to a foreign country as this forms a major factor in how their income (both local and foreign) will be treated.