One of the common features of the investment climate in many African states is the establishment of special zones – generally referred to as export processing zones (EPZs) – designed to spearhead their export-led economic development strategies.

Most governments make the availability of incentives an integral part of their EPZ regimes to enhance their attractiveness to investors. The incentives available include easier access to land, streamlined regulatory procedures for setting up a business, liberalised labour laws and foreign exchange controls, investment guarantees and exemptions in respect of tenancy and rent control. A key element of incentives for EPZ enterprises relates to the tax treatment of the profits from their operations and the inputs imported into the zone for their use. Additionally, special incentives may apply to individuals employed by such enterprises. Below is a review of the types and range of tax incentives provided to investors in EPZs across a range of African countries.


Tax incentives provided in respect of investments in EPZs may be grouped into two main categories: direct taxes (on the income of the enterprise) and indirect taxes (on the transactions of, or inputs used by, the enterprise).

Tax holidays

Of the direct tax incentives granted to EPZ enterprises, the most common is the tax holiday (the exemption of the enterprise’s income from tax). The types of income covered by the holiday normally include the business profits and the investment income (for example, dividends, interest and royalties) arising from its operations.

With the exception of Mozambique and Senegal, all the countries surveyed offer tax holidays for business profits generated by EPZ enterprises (see table). In five of those countries, the holiday period is designed to last indefinitely. Where the holiday period is of fixed duration, it usually ranges between two and 15 years, with a 10-year period being more common.

The holiday period is usually designed to take effect from the commencement of the productive phase of the enterprise’s activity. In this respect, the laws of some countries specify the period over which the holiday applies. For example, in the case of Gambia, the period for an enterprise conducting trading activities commences from the date on which a lease or licence to conduct such activities was obtained. In Ghana, the holiday applies from the date of commencement of operations, and in Kenya it starts from the date of the enterprise’s first sale.

Tax holidays for investment income (usually exemption from withholding tax on the income) generated by EPZ enterprises follow a more common structure than tax holidays regarding business profits, but the types of investment income covered by the holiday vary from state to state and are restricted in some cases (eg. Kenya, Morocco, Senegal and Togo) to payments made to non-residents. The holiday period for investment income normally follows that for business profits, although certain countries (eg. Ghana, Malawi, Morocco and Zimbabwe) grant an indefinite holiday for such income even though the holiday period for business profits is of limited duration or, as is the case of Senegal, no tax holiday for business profits exists at all.

The types of investment income covered by the holiday in all of the countries surveyed commonly include dividend distributions. However, some countries extend the holiday to other types of outbound investment income (eg. interest income in the cases of Kenya and Tanzania, royalties in the cases of Senegal and Tunisia, and both interest and royalties in the cases of Seychelles and Zambia). Of the countries surveyed, the laws of Gambia and Zimbabwe appear to provide the widest scope of tax holiday for investment income. Thus, Zimbabwe exempts from withholding taxes dividends from EPZ operations, as well as interest, fees, remittances and royalties paid in respect of such operations.

Concessionary rates

Where the tax holiday period is of fixed duration, most countries provide a concessionary or reduced tax rate, which applies at the end of the holiday period. In the case of countries that do not offer a tax holiday, such as Mozambique and Senegal, the reduced rate applies from the outset to all EPZs for a definite or indefinite period.

The concessionary rate is usually designed to run indefinitely but in some countries (eg. Ghana, Kenya, Tanzania and Mozambique) its duration may also be limited to a certain number of years (usually 10). Furthermore, the application of the concessionary rate may be subject to conditions in some countries. For example, in Kenya, the reduced rate will apply only to an enterprise that does not engage in any commercial activities. Commercial activity is defined as “trading in, breaking bulk, grading, repacking or relabelling of goods and industrial raw materials.”

A concessionary tax rate for investment income is, however, not common. Of the countries surveyed, only Madagascar is known to offer a reduced tax rate for dividend and payments (10%) in place of the normal rate of 20% applicable to such payments.

Taxation of employees

Tax incentives for EPZ enterprises tend generally to be confined to the activities of the enterprises themselves and not to their employees. However, a few of the countries surveyed (Kenya, Madagascar and Sudan) enhance the opportunities for the recruitment of expatriate staff by EPZ enterprises by providing a more attractive tax treatment, especially for non-resident employees, either in the form of a full exemption from personal income tax or a percentage reduction in the amount of income subject to tax.

Thus in Kenya, non-resident employees and directors of EPZ enterprises are exempt from personal income tax. Similarly, Sudan exempts foreign employees from income tax on their salaries and emoluments. In Madagascar, the income tax on foreign employees is imposed only on 35% of their wage income. In Tunisia, foreign persons (up to four) employed as supervisors or experts may opt to be taxed either at the standard rates or at a flat rate of 20% of gross remuneration.

Zimbabwe adopts a unique approach in this regard by providing relief in respect of fringe benefits taxation for both resident and non-residents.

Indirect tax incentives

The most common type of indirect tax incentive granted to EPZ enterprises is exemption from VAT or sales tax for goods and other capital items imported into an EPZ for use by the enterprise in its business activities. Unlike in the case of business profits, the tax incentive in respect of VAT/sales taxes in all the countries reviewed is designed to apply for an indefinite period.

In the case of Madagascar, Tanzania and Zimbabwe, such an exemption is effected by way of a remission or refund of VAT paid on such items. In any case, some countries (eg. Egypt, Kenya, Tanzania and Mozambique) specifically exclude items such as passenger vehicles or consumables from the exemption.

Customs duties incentives generally mirror those offered in respect of VAT or sales tax in the countries surveyed. The norm is to exempt an EPZ enterprise for an indefinite period from duties on its imports for use within the EPZ, with a specific exclusion or restriction in some countries (eg. Egypt, Kenya, Namibia, Tanzania and Zambia) for motor vehicles and consumables.

Exemptions from excise duties on goods produced or imported into an EPZ are also generally available for an indefinite period in most of the countries surveyed.

Other tax incentives

Apart from the main incentives covered above, the countries surveyed offer a range of other tax incentives for a fixed or indefinite term. These include exemptions or concessions in respect of payroll tax (eg. those offered in Gambia, Senegal and Togo), capital gains tax on the transfer of certain assets (Zambia and Zimbabwe), local government taxes (Gambia and Tanzania), stamp duties on the issue or registration of certain documents (Egypt, Kenya, Namibia and Tanzania) and property transfer taxes (Mozambique, Namibia, Senegal and Sudan).

The future

There is a trend towards the synchronisation of the tax incentive regimes for EPZs with those applicable to other exporters, resulting in the same range of incentives for all export activities whether or not they are conducted from within an EPZ. And the concept of the EPZ is undergoing some transformation into business and industrial parks, which cater for a wide range of activities and specialised services (that are not necessarily export-oriented) from one location.

More importantly, the progressive liberalisation of the international trade environment under the auspices of the World Trade Organization will exert increasing pressure on the necessity for such special tax incentives. Consequently, states will be compelled to focus more on providing non-tax incentives for EPZ activities.

Jude Amos is chief editor, Africa and Middle East, at IBFD.