Tax remains a major hurdle for family businesses
This is the second article in a four-part series providing key insights of importance to Family Businesses from the Julius Baer Family Barometer 2023, done in collaboration with PwC.
The first finding from the Family Barometer 2023 report focuses on the geographical diversity within which family businesses operate. This report was issued by Julius Baer and PwC and focused mainly on Europe, Asia, the Middle East and the Americas but the key findings resonate globally. The report was built from the responses of the “Rising Generation,” aged between 18-40.
With increasing globalisation, more families are finding themselves dispersed across different countries. Family members might choose to study or work abroad, fall in love and marry into a different culture, or choose to settle with their own family in a foreign country. This cultural and geographical diversity within one family makes family affairs much more complex. Consequently, these families have to adapt their strategies to navigate this complexity across continents.
Navigating the varied political and legislative landscapes of different jurisdictions is a significant challenge for families, as they strive to ensure their businesses and family affairs operate smoothly and in compliance with regulations. Getting the family together around a table to discuss and make key decisions also tends to be harder as they are spread across the globe. This distance puts strain on relationships and concerted efforts have to be made to ensure that everyone is on the same page for the business’ and family’s future.
Globalisation offers families a unique advantage, as the experiences and knowledge acquired by the next generation can significantly enrich the family if their insights are welcomed and valued.
“NextGen, who gained international education, networks and experiences are a valuable resource to their family businesses. Unfortunately, these resources are in most cases not used. Allow for new ideas and perspectives by inviting them to family council and board meetings. This will help both the business as well as closing the communication and generation gap in the family”
Lately, regular changes to tax legislation were made due to monetary and fiscal policies. In South Africa, for example, there has also been a more specific focus on trusts’ regulations which directly influences many family business structures.
“On the back of COP 28 where fossil fuels need to be phased out, most family businesses in West Africa will need to think not only about energy transitions but also how to strike the balance with taxes now seen by the Government as the next big driver for public funds. Nigeria’s renewed drive on tax reforms builds a strong case that family businesses must not forget how tax impacts their structures.”
With deficit budgets and high-interest rates on foreign borrowings, African governments are under pressure to raise revenues through taxes. This fiscal imperative means tax policy is frequently changing as administrations seek to mobilise domestic resources. While trade pacts like the African Continental Free Trade Area (AfCFTA) can ease cross-border business, complex and shifting tax codes pose a major challenge for family companies operating across African nations.
In response to these fiscal pressures, some African governments are implementing reforms. For example, Nigeria’s Presidential Fiscal Policy and Tax Reforms Committee has recommended fiscal reforms such as granting tax breaks to companies that increase wages of low-income earners and using technology and data intelligence to improve tax administration. Kenya is also looking to reduce the Value Added Tax (VAT) gap from 38.9% to 19.8% of the potential by introducing an electronic Tax Invoice Management System.
Family businesses must stay nimble to leverage evolving tax and trade frameworks. With sound guidance, family enterprises can adapt to policy shifts while sustaining growth and job creation. Coordination between African governments is essential for harmonising tax policies and reducing red tape, so family businesses can optimise opportunities, comply with disparate rules, and focus on building prosperity.
Experts in different jurisdictions or entities with a global footprint are well situated to meet the needs of the entire family – no matter where in the world they are situated. These global firms are able to connect with a network of experts from all the countries where the family has a footprint. This approach not only guarantees that the family receives the best possible service but also ensures compliance with the laws and regulations of the different jurisdictions involved.
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