Eswatini businesses are often held by parent companies abroad, making it difficult for the Eswatini Revenue Service to tax gains when these parent companies are sold. This is known as an "offshore indirect transfer". Unless the law clearly reaches such sales, the gain can escape tax where the value was created. International Tax Advisor Miguel Tomé de Medeiros notes that this matters for the government's own goals, as the 2026/27 budget expects significant revenue from the Southern African Customs Union.
Eswatini has taken a step to address this issue, with the Income Tax (Amendment) Act 2023, which taxes gains on the disposal of business assets, including shares, as part of taxable income. However, a non-resident is taxed only on income from an Eswatini source, and the law does not clearly say when the sale of a foreign company that owns an Eswatini business counts as an Eswatini sale. A South African seller of shares in an Eswatini company is also protected by the tax treaty.
Neighboring countries have acted to address similar issues. South Africa taxes non-residents selling shares that derive 80 per cent or more of their value from South African immovable property. Botswana, Namibia, Zambia, and Kenya have also implemented laws to tax indirect transfers of shares in companies holding mineral rights or other assets.
A recent deal illustrates the complexity of these transactions. Coca-Cola HBC, listed in London and Athens, is buying 75 per cent of Coca-Cola Beverages Africa (CCBA) for US$2.6 billion, valuing the bottler at US$3.4 billion. CCBA operates in 14 countries, including Eswatini, through Eswatini Coca-Cola Beverages, majority-owned by CCBA since 2019. The deal is expected to be completed by the end of 2026.
Eswatini is a small share of the group's value, and the parties are entitled to rely on the law as written. However, the real test will come when the business sold abroad is mostly Eswatini, such as a sugar estate or a hotel. Enforcement is also a challenge, as seen in a dispute between Galp and Mozambique's tax authority over a US$881 million sale.
To address these issues, a clear value test could be implemented, where gains on shares in any company, local or foreign, that derives most of its value from Eswatini land, mineral rights, or business assets would be considered Eswatini-source. A duty on local companies to report changes in ultimate ownership could also be introduced.
Experts suggest that clear rules would put a country at the table when its assets change hands, and that serious investors prefer clear rules to later disputes. A tool, Transfer-Radar, can watch publicly announced cross-border deals and estimate the tax potentially at stake. None of this is anti-investor, and gaps mostly benefit the largest, best-advised groups.
Key points
- Eswatini faces challenges in taxing gains from foreign sales of local businesses
- Neighboring countries have implemented laws to address similar issues
- Clear rules and enforcement are needed to ensure tax revenue
