Why African Family-Owned Businesses Need to Think About Structuring Now
Over the next few years, the world is set to witness the largest inter-generational transfer of wealth in history. In Africa, this shift brings with it unique challenges – and potentially significant tax costs – for family-owned businesses. Yet, African families are often far less prepared when it comes to structuring their wealth, leaving their legacies vulnerable.
The African Wealth Transfer: A Perfect Storm
For many African families, wealth is concentrated in family-owned
businesses, often built over decades by pioneering founders. However,
when wealth is transferred from one generation to the next, it can
trigger a range of tax implications, from estate taxes to capital gains
taxes, which can erode the family fortune if not properly planned for.
But tax is only part of the story. Africa brings its own set of challenges that further complicate wealth preservation:
- Sovereign and Country Risk: Political instability and changing regulatory environments can put family assets at risk.
- Forex Volatility: Many African currencies are notoriously unstable, making it difficult to preserve value over time.
- Exchange Controls: Stringent rules around moving money across borders can create significant hurdles for families looking to diversify and protect their wealth.
These factors make it more critical for African families to consider international structures where their wealth can be protected. By structuring through jurisdictions with stable economies and hard currencies, families can safeguard their assets from local risks while optimising their tax positions.
Why Aren’t Families Acting?
So, if the risks are so clear, why aren’t more African families putting structures in place? A big part of the problem is cultural. In many African traditions, discussing the death of the patriarch is considered taboo, leading to a lack of conversation around succession planning. As a result, when the founder passes, families often find themselves scrambling to untangle complex estates, resulting in unnecessary tax bills, legal disputes, and, in some cases, the loss of the family business altogether.
Moreover, the absence of proper documentation can leave assets unaccounted for or inaccessible, creating further complications. Without a clear plan, the very wealth that was meant to support future generations can become a source of conflict and erosion.
A Call to Action: Structuring for the Future
The time to act is now. African families must start engaging in these difficult conversations and put the right structures in place. International structuring offers a means to protect wealth, ensuring assets are held in stable jurisdictions, in hard currencies, and in a tax-efficient manner.
At Regan van Rooy, we understand the complexities involved in wealth structuring for African family-owned businesses. Our expertise lies in crafting bespoke structures that mitigate local risks while safeguarding family wealth for generations to come. We work closely with families to navigate the intricacies of international tax laws, exchange controls, and succession planning. In the face of the largest wealth transfer in history, the question isn’t whether to structure – it’s whether you can afford not to.
Get in touch if you’d like to start the conversation; we’re here to help.
Caoilfhionn Van Der Walt
Caoilfhionn (pronounced Keelan) van der Walt, a chartered accountant, is based in Mauritius. Before founding Regan van Rooy, she spent nine years as the head of the international tax function at South African multinational, Sasol.
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