Investment Framework
Investment provisions in the EAC Customs Union Protocol consist of rules on pre and post-entry treatment, investment incentives, competition and dispute settlements etc. On the other hand, Article 29 of the Common Market Protocol requires Partner States to protect cross-border investments and investment returns of investors of other Partner States within their territories and a schedule for removal of existing restrictions on the free movement of capital within the EAC region.
The proposed EAC Investment Policy 2019-2024 intends to unlock the constraints by putting in place a common legal and regulatory framework for the collective promotion of EAC as a single investment destination. The EAC Investment Policy 2019-2024 will pursue a coordinated region-wide approach to the promotion of investment opportunities seeking to attract domestic, regional and foreign direct investment. This is to complement nationalistic efforts that have been targeting and competing for the same investment catchment areas (source investments markets) at substantial cost to the Partner States themselves. The EAC investment policy will enable the Community to meet its investment targets, particularly in light of the current difficult global economic realities.
The EAC Treaty requires Partner States to "harmonise and rationalise investment incentives, including those relating to taxation of industries".
The EAC Common Market Protocol provides for freedom of movement of goods, labour, services, and capital. Its provisions on investment call for the protection and harmonization of tax regulations. A Policy on EAC Domestic Tax Harmonization was developed and endorsed by the Finance Ministers during the 8th Meeting of the Sectoral Council on Finance and Economic Affairs held in May 2018. Detailed harmonization proposals for VAT and excise taxes rates were being developed for consideration by the finance ministers. The 2006 EAC Model Investment Code provides for the free transfer of assets, and protection from uncompensated expropriation. EAC countries can negotiate and enter investment treaties with third countries. A Model Investment Treaty was adopted in 2016, with the objective of guiding, and serving as a template for, negotiations.
The EAC investment Framework supports free movement of people, capital, labour, services and right of establishment and residence; promotes balanced and competitive industrial/manufacturing sector in the region; promote participation of the citizenry and having them fully aware of the EAC affairs; strengthens relations with other regional and international organisations; supports duty Drawback Schemes; supports Duty and VAT Remission Schemes; supports Manufacturing-Under-Bond (MUB) Schemes; provides for Export Processing Zones (EPZ); provides for the establishment of free ports within the EAC; and provides for Harmonisation of Duty Exemption Regimes.
On the other hand, double taxation remains a major hurdle for cross-border investment flows. Investment income generated from cross-border operations are taxed not only in the country of generation, but also in the country of residence of the taxpayer. An Agreement on the Avoidance of Double Taxation was signed in November 2011, but the ratification process is ongoing (EAC, 2016, The Double Taxation Avoidance Agreement of the East African Community Handbook). The ratification process is slow due to fears of loss of revenue and tax evasion. So far, Kenya, Rwanda and Uganda had ratified the Agreement.
Furthermore, the EAC Partner States have their own institutions and regulatory mechanisms for dealing with foreign investment. Each country has its own requirements with respect to such matters as company registration and incorporation procedures, permits and licenses, property acquisition, access to capital and land, ownership and management control, and exit procedures.