The East African Community (EAC) makes it easier to trade across borders, but each partner state still runs its own tax system. If you’re planning to sell into, or set up in, another EAC country, these are the tax basics to understand first.
A common market, but separate tax systems
The EAC customs union applies a common external tariff on goods imported from outside the region, and qualifying goods can move between partner states without import duty. But income tax, VAT, payroll taxes and local levies are still set nationally. Each country has its own rates, registration rules and filing deadlines.
Will you have a taxable presence?
The key question is whether your activities create a permanent establishment in the other country, for example an office, a branch, a long-running project or staff who regularly conclude contracts there. If they do, that country can tax the profits linked to that presence, and you’ll need to register and file there.
Withholding tax on cross-border payments
Payments for services, royalties, interest and dividends made across borders are often subject to withholding tax in the country where the customer is. This affects your pricing and cash flow, so factor it into contracts and quotes from the start.
Double taxation agreements
Where a tax treaty exists between two countries, it can reduce withholding tax rates and determine which country has the right to tax certain income. Treaty coverage varies across the region, so check whether one applies to your specific route before relying on it.
Related-party transactions
If you operate through companies in more than one country, transactions between them, such as management fees, goods or loans, must be priced at arm’s length. Transfer pricing rules apply, and documentation is often required.
People and payroll
Sending staff to work in another partner state can create payroll tax and social security obligations there, as well as work permit requirements. Plan these before people travel, not after.
A simple checklist before you expand
- Map exactly what you’ll be doing in the new country and for how long.
- Decide between exporting, a branch, a subsidiary or a local partner.
- Confirm registration requirements for income tax, VAT and payroll.
- Check withholding tax and any treaty relief on your payments.
- Put intercompany agreements in place if you’ll have related entities.
The bottom line
Regional expansion is a real opportunity, and getting the tax structure right early protects your margins. Speak to an adviser who knows both your home rules and the rules in your target market.
This article is general information, not tax or legal advice. Rules change and every business is different, so speak to an STAA advisor about your situation.