Investing in African mining: Does the shoe match the footprint?

One of these factors is to determine if the African mining operations will be housed in a branch or a subsidiary. This determination is best informed by a proper understanding of the key features of a branch and a subsidiary.

Legal status

A branch does not have a separate legal identity. This means that it is an extension of its foreign head office. In some instances, the legal liabilities of the branch can also be attributed to the head office. A branch may not be feasible in African countries which have local content and ownership requirements, such as Ghana, Zambia, Guinea, Senegal, South Africa, Tanzania and Angola.

A subsidiary, on the other hand, is a separately incorporated legal entity. Due to its legal status, it offers more flexibility in establishing strategic ownership structures such as joint ventures, and adhering to local ownership criteria.

Operational requirements

A branch and a subsidiary have to be registered in terms of the corporate law of the relevant country, and will have post-registration compliance obligations. Generally, the setup process for a branch is simpler and there is less post-registration compliance obligations. For example, in South Africa a subsidiary is required to subject its annual financial statements to an independent review or an external audit, while a branch is not required to compile annual financial statements. On the other hand, it may be more difficult procuring information from the head office, especially where the entity has a large board of directors.

However, a subsidiary may be a better option for long-term investment, given the many convergences between a branch and a subsidiary from a compliance perspective. Both a branch and subsidiary may be required to:

• Open a local bank account;
• Register for taxes such as income tax, employment taxes, value-added tax;
• Register as an importer and / or exporter;
• Submit returns or reports as required by local corporate laws; and
• Appoint a local representative.

Tax liability

Most of the time, the tax regime applicable to branches differs slightly from the regime applicable to subsidiaries. What may become challenging is where the domestic tax law of the relevant country deems the branch to be a person solely for tax purposes, even though the branch is not a separate legal entity. For example, in South Africa, if a branch is regarded to be a permanent establishment the profit attributable to that permanent establishment is subject to corporate income tax at a flat rate of 27%.

To comply with the relevant tax laws, a head office may be required to keep separate accounting records for the branch. Furthermore, in certain instances a transfer pricing benchmarking analysis may also be required with respect to branch activities. This erodes the perceived benefit of a lesser administrative burden.

Repatriation of profits

As a subsidiary is a separate legal entity, any profits repatriated to its beneficial owners could be subject to dividends withholding tax. A branch is an extension of the foreign head office, and repatriation of profits to the head office will not be subject to any dividends withholding tax. However, it should be noted that certain African countries (e.g. Kenya) may have a specific tax rate applicable to branches, which is higher than the corporate income tax rate.

Exchange control

Certain African countries also have exchange control regulations which should be managed. Therefore, when registering either a subsidiary or branch, it should be ensured that the exchange control regulations are adhered to, to ensure that profits and loan funding repayments can easily be remitted without unnecessary delays.

Does the shoe fit?

While the African mining sector presents lucrative investment opportunities, investors should carefully consider which investment vehicle is best suited to its strategic, operational and financial goals.

^{*This article was published in African Mining here}

Authors

Evádne Bronkhorst, Associate Director – Tax Consulting

Tertius Troost, Associate Director – Tax Consulting

ⁱ_{African Mining Week. 2025. Post show report.}