Private equity exits in Africa have generally been treated as capital-gains events, with tax authorities usually paying more attention to taxing inflows into the country than to taxing profits when investors exit.
There are hints that this trend could be turning, going by recent events in Kenya, where tax and judicial authorities ruled that profits from the 2017 sale of Java House Group (Java House) by Emerging Capital Partners (ECP) should be taxed as business income rather than capital gains. While the structure ECP used (a Mauritius-based holding entity) was typical for private equity operations and exits in the region, the Kenyan authorities found enough on-the-ground activity to conclude that ECP had created a permanent establishment in the country, and that the profits from the exit were ultimately generated through in-country activities.
This is an instance of a regulator assessing where economic value is actually created, rather than relying solely
