Tax considerations in deal structuring

Godknows Hofisi

THIS article is introductory, simplified and not exhaustive.

Many people and organisations enter into business or financial deals to derive mutual benefit.

Such deals include supply contracts, buying and selling of properties, foreign currency trading, joint ventures, brokerage, distribu­torship, dealership, mining arrangements, mergers and acquisitions and many others.

Common areas focused on

Many times I have been involved in deal structuring usually through being consulted by clients either as financial, business or legal advisor.

Most of the time, parties to a deal focus on areas you would normally find in an agreement or contract.

These include:

◆ The type of business arrangement or deal contemplated

◆ Parties to the arrangement or deal

◆ The item which is the subject of the trans­action, e.g. immovable property or foreign currency

◆ Consideration or price for the item

◆ Terms and conditions such as payment of the purchase price, breach, dispute resolution, termination, effects of termination, address of service.

Taxation

Taxation can easily be overlooked in deal structuring, especially by non-finance people.

This can start in even making financial pro­jections or project investment appraisals. In deal struc­turing or busi­ness transac­tions, tax implications, particularly on the anticipated mutual financial gains, have to be factored in.

For example, the purchase consideration has to be stated whether it is inclusive or exclu­sive of taxes and duties.

I have seen financial projects where the anticipated financial return was considered without, for example, factoring in income tax in the form of corporate tax in the case of a company.

Even on the sale of an immovable property, capital gains is at times overlooked by the seller only for one to be surprised or disappointed when Zimra raises a tax bill on assessment.

Some of the taxes applicable on deals or business transactions include the following:

◆ Value Added Tax (“VAT”)

◆ Pay As You Earn (“PAYE”)

◆ Corporate Tax for companies

◆ Capital Gains Tax (“CGT”) on sale of capital assets

◆ Withholding tax (“WHT”)

◆ Royalties

◆ Presumptive tax

Advice

Entrepreneurs and executives are advised to consult their tax, financial or legal advisors on tax implications on contemplated deals or business arrange­ments before and during negotiations, but before signing any agreements or contracts.

◆ Godknows Hofisi is a legal practitioner, chartered accountant and corporate rescue practitioner. He writes in his personal capac­ity. He can be contacted on +263 772 246 900 or [email protected]