Tax presence
South Africa
Private companies and public companies
A company incorporated in South Africa (SA) or which has its place of effective management in SA will be treated as a tax resident, subject to an applicable treaty.
Private and public companies must register as taxpayers with the South African Revenue Service (SARS).
From April 1, 2023, all South African resident companies are expected to pay Corporate Income Tax (CIT) on the income generated worldwide at a rate of 27 percent. An SA corporate resident is generally not subject to SA tax on the income of its foreign subsidiaries until it is repatriated, unless the Controlled Foreign Company (CFC) rules apply.
Non-resident companies are generally not subject to SA tax except on:
- Their income which is sourced in SA
- Income derived from a trade carried on through a permanent establishment in SA
- Capital gains from the disposal of:
- SA assets attributable to a permanent establishment in SA; or
- Immovable property or an interest in immovable property situated in SA.
Tax treaties can reduce or eliminate taxes payable by non-residents.
Tax compliance
Resident and foreign companies are generally required to submit income tax returns within 12 months from the date on which the relevant financial year ends.
All companies (including foreign companies with a South African branch) are required to make provisional tax payments in respect to their SA tax liability. Provisional tax payments are advance tax payments in respect of income tax payable for the tax year and reflect as a credit against the income tax finally assessed.
Tax rulings
Taxpayers can approach SARS for advance tax rulings. However, SARS will not give an advanced ruling on certain issues (e.g., transfer pricing, general anti-avoidance, matters of a factual nature, etc.).
Distributions
Distributions paid by a company are generally treated as a dividend to shareholders, unless the board of a corporate entity determines that the distribution results in a reduction of contributed tax capital. A return in capital in excess of a shareholder's tax base will normally be treated as a capital gain.
Generally, dividend distributions by SA resident companies are exempt from income tax. In certain instances, SA companies can rely on participation exemptions for dividends received from or capital gains realized on the shares in foreign companies.
Dividend, royalties, interest and foreign entertainment withholding taxes apply.
A 20% withholding tax applies to dividends whereas the other withholding taxes are imposed at a rate of 15%. Withholding taxes may be reduced in terms of tax treaties.
Capital Gain
Capital gains tax (CGT) applies to a resident's worldwide assets and in the case of a non-resident, to their immovable property, shares in a land rich company or assets of a permanent establishment in SA.
CGT is triggered on the disposal or deemed disposal of an asset and is calculated as being the difference between the proceeds and the base cost of the asset. Assessed capital losses are carried-forward and may be set-off against capital gains in the following year of assessment. Provision is made for exclusions and rebates, as well as rollover relief, where the gain made from a disposal is disregarded until ultimate disposal of the assets. The effective capital gains tax rate for corporates is 21.6%.
Transfer Taxes
The transfer of securities of a private or public company incorporated in SA is subject to securities transfer tax (STT) at a rate of 0.25 percent.
STT is charged on the greater of the market value of the security or the amount of consideration given. Provision is made for exclusions in the case of certain inter-company transfers, lending arrangement and transfers between non-taxable organisations.
Employment Taxes
Employers are required to deduct employees tax (PAYE) on all remuneration paid to employees, including directors, unless a tax deduction directive is issued by SARS. Fringe benefits are included in remuneration.
Employers may also be required to deduct and pay unemployment fund contributions and skills development levies.
Value Added Tax
South Africa imposes Value-Added Tax (VAT) at the standard rate of 15 percent on the supply of goods or services on a destination basis, i.e. VAT is borne by the final consumer of goods or services. The primary mechanism to ensure that only local consumption is taxed in South Africa is through the zero rating (0 percent) of certain goods and services exported and the levying of VAT on the importation of goods and certain services.
It is mandatory for any business to register for VAT with SARS if its taxable supplies in any twelve month period exceeds R1 million or when it has a contractual obligation in writing to make supplies of R1 million in a 12 month period. A business may also choose to voluntarily register for VAT if the value of taxable supplies made or to be made is less than R1 million, but has exceeded R50 000 in the past 12 months.
Subject to certain exclusions in the recently revised regulations on electronic services for VAT purposes issued by the South African National Treasury, the provision of electronic services (as defined in the South African Value-Added Tax Act 89 of 1991) by foreign entities to South African customers (including businesses) is generally subject to VAT in South Africa and at least two of the following circumstances are present:
- The customer is a South African resident;
- The payment of the services originates from a South African bank account; or
- The customer has a business, residential or postal address in South Africa.
External companies
If an external company retains its effective management offshore, it will be considered a non-resident and therefore will only be charged CIT on South African sourced income.
Dividends’ tax is not imposed on any profits remitted offshore. The same VAT requirements for private and public companies apply to an external company.