How to expand into Africa – and stay on the right side of the law
Business Management

How to expand into Africa – and stay on the right side of the law

This is a contributed piece by Bruce van Wyk, Director at PaySpace

The African continent is an increasingly attractive business destination for multi-national organisations. As businesses navigate the current uncertainty in more established markets, the opportunities in Africa offer a potentially lucrative ‘new frontier’. In fact, the World Economic Forum positions Africa as the second-fastest growing region in the world with annual growth pegged at 4.3% between now and 2020.

Expanding your business into Africa is not a simple endeavour. There are many complex legislative policies that vary from country to country – and, there are 54 different countries on the continent. Unless you have the right technical support and local knowledge, these regulatory requirements can seriously hinder your company’s plans to set up an office in a new country.

Employees, be they expat or local, are crucial to expanding successfully into new markets. If their tax information or salaries are calculated incorrectly according to local legislation, they - and your company - could face severe penalties. Achieving full compliance however, may be more difficult than you think. 

 

Legislative challenges

Each one of Africa’s 54 countries has its own legislative rulebook, not to mention language and culture. If you are not familiar with the latter two, you will struggle to access the former. If you are not able to review the rules, it will be impossible to keep your business on the right side of the law. Furthermore, even if you should manage to access the information, any incorrect interpretation of the legislation due to either language or opinion, will result in non-compliance.

Foreign businesses generally enlist the help of a local service provider in each country to guide them through the legislative environment. This can become an administrative nightmare as rarely do these services offer a cross-border solution. In other words, if your company is establishing itself in three African countries, it will need to allocate resources to manage three separate supplier relationships and contracts. This labour-intensive process can delay business critical tasks that are crucial to getting your new office up and running productively.

 

Poor information

Regardless of how well you know and trust your service provider in each country, their interpretation of the local legislation could be faulty. Conflicts in opinion are common so it’s essential to always get a second opinion before acting on any advice. Legislation can also change suddenly and your local provider may not inform you in time.

The only solution here is to check-in regularly with your advisors to make sure that your company is legislatively compliant at all times. Here are some guidelines:

  • If you have the right contacts, double-check your information with the relevant local government department.
  • Establish a notifications system so that you are alerted to all updates and changes in legislation sooner rather than later.
  • Ask a local HR or payroll specialist to verify your interpretation of the legislation.
  • Work with a service provider that can offer you a robust cross-border solution.
  • Stay informed

 

Tax implications

If you have local and expat employees working together in various African countries, you will need to get up-to-speed on the different tax regulations in each country. Foreign staff in Angola say, could have a different tax status to local staff and be subject to certain deductions. Employees in Zambia for example, could be tax exempt if their salaries fall below a certain bracket.

To entice expat employees to take a foreign posting, most contracts include attractive housing and travel allowances, not to mention comprehensive medical care. Some perks even cover the employees’ children’s education costs. These are taxable items that may apply to your employees’ tax returns in both their home and host countries. Speaking of, your company will need to know when each country’s annual tax season begins and ends. Failure to submit employee and employer tax returns on time could result in severe penalties. 

Depending on the country’s infrastructure, you may have to file the tax returns by post. Worst case scenario is a manual submission at the tax office. However, digital advances are being made and many more countries now accept online submissions.

When calculating your expat employee salaries, bear in mind that local currency and exchange rates will also impact their remuneration. Accepting an overseas post should never result in a drop in pay so you need to consider how every element could impact the amount your employees take home, not just the tax implication.

 

Administrative risks

A successful African expansion plan is underpinned by full legislative compliance. There is no doubt that having the right resources and information on hand can make all the difference, and help you avoid some administrative nightmares. In one recent incident involving a multi-national organisation, the army arrived at the company’s local office to arrest the payroll manager for non-compliance. Fortunately, the payroll system showed a clean record of correct employee tax calculations and absolute adherence to the latest local legislation. As a result, the manager was not imprisoned.

There are great rewards to doing business in Africa – if you follow the rules. Ensure that your company has the best support and advice to help it stay compliant, risk-free and infinitely profitable.

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