Eswatini Business Sale Tax Abroad: Loophole Allows Offshore Sales to Evade Tax

• Eswatini has introduced a tax on gains from the sale of business assets.
• Sales agreements for Eswatini companies signed outside the kingdom can bypass this domestic tax.
• This loophole allows local businesses to change ownership without any Lilangeni reaching the Eswatini Revenue Service.
• Immovable assets like bottling plants, sugar estates, and timber plantations are subject to this cross-border ownership transfer.

A notable loophole permits the transfer of ownership of an Eswatini-based company to a new entity without any tax proceeds, specifically in Lilangeni currency, being remitted to the Eswatini Revenue Service.

Eswatini has recently implemented measures to tax gains derived from the sale of business assets, marking a significant development in Eswatini business asset taxation. This aims to capture revenue from transactions involving local enterprises. However, a significant challenge has emerged concerning the effective collection of this tax, particularly when businesses are acquired through international dealings.

A notable loophole permits the transfer of ownership of an Eswatini-based company to a new entity without any tax proceeds, specifically in Lilangeni currency, being remitted to the Eswatini Revenue Service. This occurs when the sale agreement is formally executed outside the kingdom's borders, effectively bypassing domestic tax collection mechanisms despite the underlying business remaining within Eswatini. This situation highlights a critical aspect of Eswatini business sale tax abroad.

The core of this issue lies in the ability to conduct an Eswatini cross-border M&A tax transaction entirely offshore. When a local company is sold through an agreement signed in another jurisdiction, the change in ownership can be finalized without triggering the domestic tax obligation on asset gains. This means that while the physical assets and operations of the business are firmly rooted in Eswatini, the financial benefits from their sale may not contribute to the nation's coffers.

Examples of such immovable assets include industrial facilities like a bottling plant, agricultural holdings such as a sugar estate situated in the Lowveld region, or extensive natural resources like a timber plantation. These assets cannot be physically relocated, yet their ownership can be transferred through a foreign sale, potentially leading to zero Lilangeni tax foreign sale revenue for the Eswatini government. This scenario underscores the complexities faced by the Eswatini Revenue Service in asserting its claim over capital gains from such transactions.

The current framework presents a significant challenge for the Eswatini Revenue Service (ERS) in its efforts to collect Eswatini Revenue Service capital gains from the sale of local businesses. The ability for transactions to be concluded externally means that substantial financial gains from the transfer of valuable Eswatini business assets may not be subject to domestic taxation. This situation could lead to a considerable loss of potential revenue for the kingdom, impacting its fiscal capacity.

For legal professionals and compliance officers involved in M&A activities concerning Eswatini businesses, this loophole necessitates careful consideration. Advising on such cross-border transactions requires an acute awareness of where the sale agreement is executed and its direct implications for tax liability within Eswatini. Ensuring proper tax planning and disclosure becomes paramount to navigate these complexities, especially given the ERS's interest in taxing gains from assets located within its jurisdiction, regardless of where the sale is formally concluded.

Lawyers advising on M&A involving Eswatini businesses should be aware of the potential tax implications and loopholes when assets are sold to foreign entities, particularly regarding the Eswatini Revenue Service's ability to tax gains from transactions concluded outside the kingdom. Compliance officers should review their company's exposure to such cross-border transactions and ensure proper tax planning and disclosure.

Source: Original reporting via Times of Eswatini