This country-specific Q&A provides an overview to tax laws and regulations that may occur in South Africa.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-4th-edition/
How often is tax law amended and what are the processes for such amendments?
Amendments to South African tax law occur annually. The amendments are not limited to a specific area of tax law and may cover direct and indirect tax laws.
The process to amend the tax law is set out below:
i. Stakeholders suggest proposed amendments to National Treasury under the "Annexure C" (to the Budget Review) submission process.
ii. Proposed amendments to primary legislation are announced by the Minister of Finance in his annual Budget Review in February each year.
iii. National Treasury releases two draft bills that contain the wording to give effect to the proposed amendments. A draft explanatory memorandum, which sets out and explains the proposed changes to the tax law introduced in the Budget Review, accompanies the draft bills in June / July each year. The draft bills propose amendments to both the substantive tax law, by way of a "money bill" and administrative tax law, by way of an "ordinary bill".
iv. Stakeholders, including business, tax advisers, civil society organisations and the general public are given an opportunity to consider and provide written comments on the draft bills. National Treasury and the South African Revenue Service ("SARS") facilitate workshops to engage with stakeholders and ensure that public comments are properly considered.
v. The draft bills are then presented to Parliament where the Standing Committee on Finance (in the National Assembly) and the Select Committee on Finance (National Council of Provinces) consider the draft bills. The parliamentary committees also request public comment on the draft bills and convene public hearings.
vi. National Treasury prepares and presents a response document to the written comments and input received during the workshops, at the parliamentary committee hearings.
vii. National Treasury then revises the draft bills, taking the public comments and recommendations of the parliamentary committees into account. The bills are tabled in Parliament again for its consideration and then the amendment bills are sent to the President for assent.
viii. Once the President has assented to the amendment bills, they are promulgated as Acts of Parliament. The promulgation date of an Amendment Act serves as the implementation date for all the sections of that particular Amendment Act where a specific commencement date is not stated. Where a specific date (which can be retrospective) is provided for a section in an Amendment Act, that will be the commencement date of that particular section on promulgation.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The document retention requirements are found in the Tax Administration Act, 2011 under the section dealing with "Returns and Records".
Generally, a taxpayer (whether natural or juristic) must retain their records, books of account or documents for five years. The records, books of account or documents must be kept in their original form, in an orderly fashion and in a safe place.
Where a taxpayer is subject to an audit, objection or appeal process all information relevant to the audit, objection or appeal must be retained until the audit or investigation is concluded or the assessment or the decision becomes final.
Generally, as income tax is an annual event, returns of account must be filed annually, except for value-added tax ("VAT") and pay-as-you-earn, for which shorter periods are prescribed (see Question 5 below).
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
SARS is the key regulatory authority for tax matters in South Africa. In particular, the Commissioner of SARS is the figurehead responsible for implementing the various tax laws in South Africa, as well as for monitoring and enforcing compliance with the tax laws.
SARS is generally responsive to engagements and adheres to the time periods specified in the tax laws, which are generally in 30 business day intervals.
Whilst each dispute must be considered on its particular facts and circumstances, standard issues can be resolved in three to twelve months.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Where appropriate, matters may proceed to the Tax Board, the Tax Court or the High Court (usually in the case of review proceedings under the Customs and Excise Act, 1964).
The Tax Board is an administrative tribunal created under the Tax Administration Act, 2011. The Tax Board may hear tax appeals where the amount in dispute does not exceed R1 million. The taxpayer and SARS must, however, agree that the matter may be heard by the Tax Board. Where either the taxpayer or SARS is dissatisfied with the Tax Board's decision, the matter may be heard afresh by the Tax Court.
The Tax Court is an administrative tribunal, which has jurisdiction over tax appeals, interlocutory matters and procedural matters relating to objections and appeals. There is no limit on the quantum of disputes that may be heard by the Tax Court. Where a taxpayer or SARS is dissatisfied with the decision of the Tax Court, the decision may be appealed to the full bench (i.e. where three judges sit on the bench) of the Provincial Division of the High Court having jurisdiction over the matter or to the Supreme Court of Appeal with leave of the Tax Court.
Realistically, if the matter proceeds to the Tax Court, a taxpayer can expect proceedings to take between one and two years to be finalised. Any appeal to the full bench of the Provisional Division of the High Court having jurisdiction or to the Supreme Court of Appeal will usually take a further period of one to two years to complete.
Although a tax matter may, in principle, be appealed from the Supreme Court of Appeal to the Constitutional Court, the Constitutional Court will only grant leave to appeal if a litigant satisfies the Constitutional Court that the matter raises an arguable point of law of general public importance (usually a constitutional matter), which ought to be considered by it.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
South Africa has a complex tax system with various tax types applying to a broad spectrum of entities and individuals. There are set dates for payment of each different tax and these dates are as follows:
- Corporate income tax is paid on a provisional tax basis. The first payment must be made within six months from the beginning of the year of assessment. The second payment must be made on or before the last day of the year of assessment. The third and final payment must be made within seven months after the year of assessment if the tax period ends in February and within six months for all other cases. Generally, individuals with multiple sources of income will also be registered as provisional taxpayers.
- The payment dates for VAT vary depending on the total value of taxable supplies made by a registered VAT vendor, which are categorised as follows:
- VAT will be paid monthly if, amongst other requirements, the value of taxable supplies made exceeds R30 million;
- VAT will be paid ever two months if the value of taxable supplies made is between R1 million and R30 million;
- VAT will paid bi-annually if an enterprise is carrying out agricultural, pastoral or other farming activities and the value of taxable supplies made does not exceed R1.5 million; and
- VAT will be paid annually upon written application to SARS indicating that it has been agreed between the VAT vendor and the recipient of the taxable supplies that the tax invoices are issued and consideration is received only once a year. In order to pay VAT annually:
i. The VAT vendor must be either a company or a trust;
ii. The business must consist entirely of letting fixed property, the renting of moveable goods or the provision of a management or administration service to connected persons; and
iii. The application should also indicate that both the VAT vendor and the recipients of the services are registered for VAT and may claim the relevant input tax deductions regarding the taxable supplies.
- Turnover tax (being a tax levied on small business with an annual turnover of R1 000 000 or less) has three payment dates. The first payment is in the middle of the tax year on the last business day of August. The second payment is at the end of the tax year on the last business day of February. The final payment is after the annual tax return is submitted and processed, which occurs between 1 July and 31 January of the following year.
- Individuals must submit personal income tax returns annually, usually by 31 October of the year following the applicable year of assessment, and any income tax must be paid by the date stipulated by SARS on the relevant notice of assessment. Individuals who earn less than R500 000 per annum may not be required to file income tax returns where they comply with certain further requirements, including that they:
- received income from one employer only for the full year of assessment;
- received no other income (e.g. rental income, income from another employer or business income); and
- did not claim additional deductions (e.g. for medical costs, retirement annuity fund contributions or travel expenses).
- Employer's must deduct and pay over employees' tax to SARS by the 7th day of every month following the month in which the amount was deduct from employees' salaries.
- Donations tax must usually be paid at the end of the month following the month during which the donation took place.
- Returns for withholding taxes on interest, dividends and royalties should be submitted to SARS before the end of the month after the month when the interest, dividend or royalty was paid. The tax withheld on interest, dividends and royalties must be paid over to SARS by the withholding agent (either the company or a regulated intermediary) on or before the last day of the month when it was paid.
- Generally, a broker or transfer secretary must pay securities transfer tax on the transfer of listed securities by the 14th day of the month following the month during which a transfer took place. The person for whose benefit that security is transferred will be required to place the broker or transfer secretary in funds to settle the tax. For unlisted securities, securities transfer tax must be paid within two months from the end of the month in which the transfer of the unlisted security took place. The entity whose shares are transferred will have the obligation to pay the securities transfer tax. However, such company will have a right of recourse against the purchaser of the shares.
- Transfer duty is payable within six months of the date of acquisition of the immovable property.
Generally, SARS adopts the "pay now, argue later" principle regarding the payment of any tax due. Subject to complying with a non-exhaustive list of requirements, a taxpayer may, however, request SARS to suspend the payment of any tax, or a portion thereof, due under an assessment, which the taxpayer disputes.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public register of beneficial ownership?
Yes, the Tax Administration Act, 2011 contains various provisions that protect the confidentiality of information pertaining to tax matters, whether the information originates from SARS or the taxpayer.
The Tax Administration Act, 2011 includes a general prohibition on the disclosure of any information relating to a tax matter, especially if that disclosure would seriously impair a civil or criminal tax investigation.
However, the Tax Administration Act, 2011 does provide that a senior official SARS may disclose certain taxpayer information in specific, pre-determined circumstances, including to:
- the Statistician-General as may be required for publishing statistics;
- a commission of inquiry established by the President of the Republic of South Africa under a law of the Republic, limited to the information to which the Commission is authorised by law to have access;
- to an employer of an employee, limited to the income tax reference number, identity number, physical or postal address of that employee and such other non-financial information in relation to that employee, as that employer may require in order to comply with its obligations in terms of a tax Act;
- a recognised controlling body of a registered practitioner, limited to such information in relation to the tax practitioner as may be required to verify that certain requirements are being given effect to;
- the Governor of the South African Reserve Bank or other person to whom the Minister of Finance delegates powers, functions and duties under the Exchange Control Regulations, limited to the information as may be required to exercise a power or perform a function or duty under the South African Reserve Bank Act;
- the Financial Sector Conduct Authority, limited to the information may be required for the purpose of carrying out the Financial Sector Conduct Authority’s duties and functions under the Financial Sector Regulation Act;
- the Financial Intelligence Centre, limited to the information as may be required for the purpose of carrying out the Centre’s duties and functions under the Financial Intelligence Centre Act;
- the National Credit Regulator, limited to the information as may be required for the purpose of carrying out the Regulator’s duties and functions under the National Credit Act;
- the Auditor-General insofar as it relates to the performance of the Auditor-General's duties; and
- an organ of state or institution listed in a regulation by the Minister of Finance, limited to information to which the organ of state or institution is otherwise lawfully entitled to and for the purposes only of verifying the correctness of the particulars of a taxpayer.
Yes, SARS is a signatory to the Common Reporting Standard. The Common Reporting Standard Regulations have been issued under the Tax Administration Act, 2011.
Although the position is currently unclear, it is likely that a public register of beneficial ownership will be kept in the near future.
What are the tests for residence of the main business structures (including transparent entities)?
The Income Tax Act, 1962 defines "resident" in the context of a person other than a natural person (for example companies and trusts) as any person which is incorporated, established or formed in South Africa or which has its place of effective management in South Africa. The definition expressly excludes any person deemed to be a resident of another country under an agreement for the avoidance of double taxation in place between South Africa and that country.
The term "place of effective management" is not defined in the Income Tax Act, 1962 and should be determined in terms of its ordinary meaning and the common-law principles of interpreting statutory provisions. Guidance from SARS and commentary published by the Organisation for Economic Co-operation and Development (the "OECD"), provide that the term "an effective place of business" is generally interpreted to mean the place where the day-to-day activities of the relevant business take place and where key managerial and commercial decisions, which are necessary for the conduct of the relevant business, are on an on-going basis and in substance taken.
Practically, a foreign company incorporated outside South Africa may be classified as being a South African tax resident if SARS is able to prove that the company concerned is effectively managed from South Africa. As a result, tax may arise in both the foreign country and South Africa if there is no double taxation agreement in place between the foreign country and South Africa to resolve the issue of residence.
A partnership is not a separate juristic person in South African tax law and is fiscally transparent from an income tax and capital gain tax perspective. This means that partnerships are not recognized as separate taxpayers but rather the individual partners are taxed separately based on their fractional interest in the partnership. The tax residency of the partners in the partnership should be established in order to determine whether tax will be payable in South Africa.
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
Yes, there has been an increase in the policing of cross border transactions by SARS. The main issues in particular are permanent establishment challenges, transfer pricing and controlled foreign company based disputes.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
There are provisions in the Income Tax Act, 1962 that regulate the CFC, thin capitalisation and transfer pricing regimes in South Africa.
A CFC for South African tax purposes is a foreign company in which more than 50% of the participation rights or voting rights in that company are held directly or indirectly by South African tax residents. Section 9D contains the CFC provisions, which aim to prevent South African taxpayers from locating companies in low-tax jurisdictions to avoid paying tax in South Africa. The CFC rules are anti-avoidance provisions targeted primarily at certain types of passive income and also certain other income derived by foreign companies with shareholders that are resident in South Africa.
South Africa's thin capitalization and transfer pricing regimes are regulated by section 31 of the Income Tax Act, 1962. Section 31is a self-regulating provision where tax payers are required to adjust their taxable income to reflect arm's length amounts, if transitions are entered into with "connected persons" that are resident outside South Africa and the terms and conditions of the transaction are not at arm's length. South Africa uses the OECD's "arm's length principle" as the benchmark for purposes of regulating transfer pricing in South Africa.
For example, if the terms and conditions pertaining to a loan (i.e. thin capitalisation) or the interest charged of that loan (i.e. transfer pricing) from a foreign "connected person" are not in accordance with the terms and conditions that would be agreed between a lender and borrower transacting at arm’s-length, and the differences results in a South African tax benefit, the taxpayer is required to calculate its taxable income by determining what the arm’s length terms and conditions of the transaction and disregarding the excessive portion, which will be treated as a dividend in specie declared and paid by the local borrower for dividend tax purposes.
SARS also issued practical guidance on transfer pricing, which is based on the OECD Guidelines. This guidance is not binding and does not constitute law - it merely sets out the interpretation by SARS of the transfer pricing rules.
There is currently no advance pricing agreement program in South Africa and SARS advanced tax ruling regime does not permit advanced rulings for transfer pricing.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
The provisions of the general anti-avoidance rules prior to 2 November 2016 ("Old GAAR") were supplemented by sections 80A to 80L of the Income Tax Act, 1962 ("New GAAR") from 2 November 2006 - the basic premise for the New GAAR was that the previous anti-avoidance rules had limited applicability in perceived instances of tax abuse. The New GAAR significantly widened the potential application of GAAR rules. Consequently and in terms of the New GAAR, a transaction (or series of transactions) is predisposed to a successful challenge if it constitutes an "impermissible avoidance arrangement".
While the Old GAAR was the subject of litigation by the South African courts in many instances, to date, there has been no meaningful litigation on the application of the New GAAR even though the provisions have been in force for over a decade. It has been suggested that the uncertainty regarding the application and scope of the New GAAR is one of the reasons for the lack of litigation.
Have any of the OECD BEPS recommendations been implemented or are any planned to be implemented and if so, which ones?
Prior to the OECD's BEPs Action Plan initiative being introduced in 2013, South Africa already had a comprehensive set of provisions set out in the Income Tax Act, 1962 to target base erosion and profit shifting.
As such, any legislative changes that are introduced to bring South Africa in line with the OECD's BEPs Action Plan should rather be described as refinements or ad hoc additions, as opposed to a blanket adoption of any particular action items.
In your view, how has BEPS impacted on the government’s tax policies?
Given that South Africa already had a comprehensive BEPS package in place prior to the OECD's BEPs Action Plan initiative, the impact has been limited. Amendments to tax legislation have been undertaken on an ad hoc basis as opposed to wholesale changes in tax policy.
The Davis Tax Committee has released various reports on BEPs in order to provide recommendations on how South Africa can incorporate the OECD BEPS minimum standards, best practice guidelines and international standards into its international tax framework.
Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties? If so, what are the current rates and are they flat or graduated?
South Africa's tax system is largely based on the OECD Model. South Africa is not a member state of the OECD, but obtained observer status in 1998 and is greatly influenced by its policies. South Africa is, for example, a key partner of the OECD and contributes to the OECD's work on policy issues, debt management and fiscal policy amongst others.
South Africa is an associate in six OECD Bodies and Projects and a participant in 15. It currently adheres to 19 OECD instruments.
On 11 January 2019, the OECD, SARS and National Treasury also signed a memorandum of co-operation agreeing to continue working together in the area of taxation, which is in place until December 2023.
South Africa has various direct and indirect taxes.
Residents of South Africa are directly taxed on their worldwide income earned in a particular year of assessment, excluding receipts of a capital nature. Non-residents will be taxed on income from a source within South Africa. Practically, business profits, employment income (and pensions), savings income, income from land are taxed.
Capital gains are also taxed in South Africa. Capital gains in residents' hands are taxed at a lower effective rate than equivalent income receipts. Non-residents will not incur South African capital gains tax on the disposal of assets in South Africa subject to certain provisos. The first proviso is that the asset must not be held as part of or by a permanent establishment of that non-resident in South Africa. The second proviso is that the asset should not comprise immovable property or an interest in a "land-rich" company. A land-rich company is one where 80% or more of the market value of those equity shares, ownership or the right to ownership or those shares is either directly or indirectly attributable to immovable property in South Africa and that non-resident, either alone or together with any connected party, holds at least 20% of the shares in that particular company.
South Africa has the following primary indirect taxes:
- Value-added tax (currently levied at a rate of 15%); and
- Customs and excise duties.
South Africa does not impose stamp duty, but does impose securities transfer tax on the transfer of securities.
Corporate income tax is a tax imposed on juristic persons, including listed and unlisted public companies and private companies, collective investments schemes, body corporates, share block companies and close corporations, which are tax resident in South Africa. Juristic persons which are tax resident in South Africa may be incorporated under the laws of South Africa or effectively managed in South Africa. Non-resident juristic persons operating through a branch or having a permanent establishment in South Africa will be subject to corporate income tax all income derived from a source within South Africa. Corporate income tax is levied a flat rate of 28%.
Turnover tax for small business is taxed at a progressive rate ranging from zero tax paid on annual turnover below R335,000, up to a payment of R6,650 on turnover above R750,000, plus 3 percent of any amount above R750,000.
Income earned by employees is taxed in South Africa on a sliding scale from 18%, if taxable income is R195 850 or less, up to 45% where taxable income exceeds R1 500 000.
Pension income (i.e. taxable income from lump-sum benefits or severance benefits) is taxed differently to normal income and is taxed on a sliding scale from 0% where the amount paid out does not exceed R500 000 and 36% on amounts exceeding R1 050 000.
VAT must be levied and paid on the supply of goods and services by a vendor in carrying on an enterprise. VAT is levied at a flat rate, which is currently 15%. VAT is also levied at a rate of 0% on certain taxable supplies, including on basic food stuffs, fuel levy goods, the supply of an enterprise, and the supply of certain services to non-residents. Input tax may still be deducted on the VAT incurred to make zero-rated supplies. By contrast, exempt supplies are supplies of goods or services where no VAT is levied and input tax on the VAT incurred to make exempt supplies is denied. Examples of exempt supplies include financial services, passenger transport in South Africa by taxi, bus or train, educational services provided by recognised educational institutions and childcare services provided at crèches or after-school care centres.
Customs and excise duties are payable at different rates, depending of the applicable tariff code that the goods are imported into South Africa.
Securities transfer tax is taxed at a flat rate of 0.25% on the higher of the market value or consideration received on the transfer of securities.
Transfer duty is a progressive tax levied on the value of any immovable property acquired. The rate ranges from 0% on property valued at R900 000 or less to 13% on property valued above R10 000 000.
Capital gains in a company's hands are taxed at an effective rate of 22.4%, whereas capital gains in an ordinary trust's hands are taxed at an effective rate of 36%. Capital gains in an individual's hands are taxed at a maximum effective rate of 18%.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The revenue profits of a company are used as a starting point to determine the relevant business tax in a particular year of assessment. The revenue profits from an accountancy perspective are then adjusted subject to various inclusions, exemptions and deductions as contemplated in the Income Tax Act, 1962.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
For income tax purposes, companies are recognised as taxable entities and are the primary taxable entity for carrying on large business in South Africa.
Partnerships are a common law vehicle and are fiscally transparent. Partnerships, specifically en commandite partnerships, are widely used for private equity funds. Partnerships offer greater flexibility and generally have less compliance requirements than companies.
Trusts, which were historically convenient from an estate-planning perspective, are similarly to partnerships largely unregulated in South Africa. A trust is regarded as a separate "person" for income tax purposes and, consequently, must be registered for income tax purposes. The use (and abuse) of trusts for perceived tax-saving purposes has been curtailed by SARS.
Is liability to business taxation based upon a concept of fiscal residence or registration? If so what are the tests?
The liability of a company to account for corporate income tax is dependent on the residency status of that company for tax purposes. The Income Tax Act, 1962 defines a "resident" as including any person which is incorporated, established or formed in South Africa or which has its effective place of effective management in South Africa. This will exclude any person deemed to be an exclusive resident of another country under a double taxation agreement.
The test to determine whether a legal person is effectively managed in South Africa is essentially a factual enquiry. SARS' has recently stated that the place of effective management of a company will be the place where the key management and commercial decisions necessary to conduct that business are actually made, which is consistent with the OECD Model Tax Convention and its commentary.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
The Department of Trade and Industry developed an industrial development zone ("IDZ") programme with the aim of attracting foreign and local direct investment in specific geographical areas in South Africa. IDZ's are geographically designed, purpose-built industrial estates that are linked to an international harbour or airport in South Africa and include a customs controlled area.
The Department of Trade and Industry subsequently developed the special economic zone ("SEZ") programme to further achieve South Africa's national and regional industrial development objectives. SEZ's may either be sector specific or multi-product specific and will include free ports, free trade zones, IDZs and sector development or specialised zones.
IDZs and SEZs have been accommodated in the applicable legislation.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
There are no enhanced tax regimes applicable to intellectual property.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Group taxation is not recognised in South Africa. However, relief is granted for transactions between group companies to allow for reorganisations, provided certain requirements are met.
Losses incurred by one entity within an economic group cannot be transferred to another entity within the same economic group, nor can such losses be off-set against the profits of another group entity.
Are there any withholding taxes?
There are withholding taxes on royalties, interest and dividends. There is also a withholding tax on payments to non-resident sellers of immovable property.
Withholding tax on royalties is due on any royalty payment paid to a foreign person or paid for the benefit of a foreign person from a source within South Africa. Although the foreign person is liable for the tax, the person paying the royalty must withhold the tax, as agent, from the payment to the foreign person. Withholding tax on royalties is currently levied at a rate of 15%. A reduced rate of tax or exemption may apply under an applicable agreement for the avoidance of double taxation in place between South Africa and a foreign country. The relevant "Withholding Tax On Royalties" declaration must be completed by the foreign person and submitted by the party paying the royalty prior to the payment of the royalty before the reduced rate can be applied.
Withholding tax on interest is charged on interest, from a source within South Africa, paid by any person to or for the benefit of a foreign person as is currently levied at a rate of 15%. A reduced rate of tax or exemption may apply under an applicable agreement for the avoidance of double taxation in place between South Africa and a foreign country. The relevant "Withholding Tax On Interest" declaration must be submitted by the party paying the interest prior to the payment of the interest before the reduced rate can be applied.
Dividends tax is a tax on shareholders (i.e. the beneficial owners) of shares when dividends are paid to them. Generally, dividends tax is withheld from dividend payments by a withholding agent (i.e. either the company paying the dividend or a regulated intermediary).
Dividends tax is currently levied at a rate of 20%. A reduced rate of tax or exemption may apply under an applicable agreement for the avoidance of double taxation in place between South Africa and a foreign country. The relevant declarations must be completed by the foreign shareholder and submitted via the withholding agent prior to the payment of the dividend before the reduced rate can be applied.
Purchasers of immovable property in South Africa, which is disposed of by a non-resident for an amount in excess of R2 million, must withhold and pay over to SARS an amount of tax. The amount to be withheld depends on the nature of the non-resident person disposing of the immovable property. Where the non-resident seller is:
- a natural person, the amount to be withheld is 7.5%;
- a company, the amount to be withheld is 10%; and
- a trust, the amount to be withheld is 15%.
A non-resident seller of immovable property situated in South Africa may apply to SARS for a directive that no amount or a reduced amount should be withheld by the purchaser from the purchase price. The amount withheld must be paid to SARS within 14 business days where the purchaser is a resident and 28 days where the purchaser is a non-resident.
The amount withheld from any payment to the non-resident seller is an advance payment of that non-resident seller's liability for normal tax for the year of assessment when that immovable property is disposed of.
Are there any recognised environmental taxes payable by businesses?
There are a number of environmental taxes payable by business in South Africa. Some pertain to the rehabilitation of land after mining activities have ceased and other, more recent taxes, pertain to the growing problem of climate change and South Africa's commitment to reduce greenhouse gas emissions under the National Climate Change Response Policy.
For example, a new carbon tax was introduced into South Africa from 1 June 2019. A carbon tax will be levied on the sum of greenhouse gas emissions from fuel combustion, industrial processes and fugitive emissions at a rate of R120 per ton carbon dioxide equivalent of the greenhouse gas emissions. This rate will increase at the inflation rate plus 2% until 31 December 2022 and adjusted in line with inflation thereafter. During the first phase of implementation, allowances linked to the nature of activity producing the impugned greenhouse gases are available to taxpayers. The allowances include basic tax-free allowances for fossil fuel combustion emissions and industrial process emissions.
Other environmental taxes include taxes on the manufacture of rubber tyres, a carbon emission tax on the purchase of new motor vehicles, plastic bag levies, electricity levies, incandescent light bulb levies and fuel levies.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not, how is it taxed?
Broadly speaking, a dividend is any amount distributed (paid or payable) by a South African tax resident company for the benefit of any person regarding any share in that company.
By contrast, a foreign dividend means any amount that is paid or payable by a foreign company in respect of a share in that foreign company where that amount is treated as a dividend or similar payment by that foreign company for purposes of the laws of that particular company.
As a general rule, dividend income received by any person from a South African source will be exempt from tax. This exemption will not apply should the dividend income received fall into any of the exemption categories, such as: dividends distributed by a REIT, dividend in respect of an employee restricted equity instrument, dividends received or accrued by a company under a cession of the right to that dividend and a dividend received or accrued by a person for services rendered under a contract of employment.
Dividends tax is a withholding tax that is levied on the payment of any amount by way of a dividend, subject to certain exemptions. Dividends tax is triggered by the payment of a dividend, and is currently levied at the rate of 20%. While the company paying the dividend has the obligation to withhold dividends tax, the liability for the tax is that of the beneficial owner of the dividend. An exception to this general principle is where a dividend consists of a distribution in specie, resulting in the liability for the dividends tax falling on the company itself (if any), which means that it may not withhold the tax from the dividend distribution. There are various exemptions available in respect of dividends tax, subject to meeting administrative formalities within prescribed timeframes. The most notable exemption is in respect of dividends paid to a beneficial owner that is a South African resident company, pension fund or provident fund.
A foreign dividend is subject income tax unless an exemption or reduced rate applies. A foreign dividend is exempt from income tax under certain circumstances, including where:
- it is received by a person who holds at least 10% of the total equity shares and voting rights in the company declaring the foreign dividend;
- that person (receiving the foreign dividend) is a foreign company and the foreign dividend is paid or declared by another foreign company;
- it is received by a controlled foreign company and that foreign dividend does not exceed the net income attributed to controlled foreign company; and
- the foreign dividend is received or accrued in cash for listed shares.
Foreign dividends are subject to a further exemption from normal tax on the aggregate amount of foreign dividends not previously exempted. The maximum effective tax rate on a foreign dividend is 20%.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?