Selling Land or Shares in Africa: Why the Tax Consequences Are Becoming More Complex

Disposals of land and shares have always been among the most significant transactions undertaken by businesses and investors.

Whether exiting an investment, restructuring a group or selling a business, understanding the tax consequences is critical.

Across Africa, however, these transactions are becoming increasingly complex.

Governments are introducing indirect transfer rules, expanding capital gains tax regimes and strengthening source rules to ensure gains connected to local assets remain taxable, even where the transaction takes place offshore.

For investors, this means a transaction completed outside Africa may still create African tax obligations.

The Rise of Indirect Transfer Rules

Historically, many jurisdictions taxed only the direct sale of local assets.

Investors could sometimes dispose of an offshore holding company rather than the underlying African subsidiary, potentially avoiding local capital gains tax.

Many African countries are closing this perceived gap.

Indirect transfer rules now allow tax authorities to tax gains arising from offshore share sales where those shares derive their value principally from assets located within the country.

This trend has accelerated significantly over recent years.

Land Remains a Particular Focus

Land continues to receive heightened attention from tax authorities.

Unlike movable assets, land is immovable and closely connected to the jurisdiction in which it is situated.

As a result, disposals of land frequently trigger:

• capital gains tax;
• transfer duties;
• stamp duties;
• VAT considerations; and
• registration requirements.

Cross-border investors should also consider how double tax agreements allocate taxing rights.

Share Sales Are No Longer Straightforward

Selling shares may appear simpler than selling underlying assets.

However, tax authorities increasingly examine:

• where value is created;
• where underlying assets are located;
• who owns the shares;
• whether the transaction is indirect; and
• whether anti-avoidance provisions apply.

The location of the signing ceremony or purchasing company is becoming less important than the economic substance of the transaction.

Due Diligence Is More Important Than Ever

Businesses contemplating disposals should assess:

• local capital gains tax and property transfer tax rules;
• indirect transfer legislation;
• withholding tax obligations;
• treaty protection;
• transfer pricing implications; and
• post-sale reporting requirements.

Failure to address these issues early can delay transactions and create unexpected liabilities.

Conclusion

Across Africa, governments are increasingly ensuring that gains connected to local economic activity remain taxable.

Whether disposing of land, shares or offshore holding structures, businesses should no longer assume that historical planning approaches remain effective.

The tax consequences are becoming more sophisticated, and successful transactions increasingly require careful planning long before contracts are signed.