Most Read Contributor in South Africa, September 2016
Section 9H to the Income Tax Act, No 58 of 1962 ("the
Act") was introduced into the Act with effect from 1 April
2012 to consolidate the exit charge rules applicable when a person
ceases to be a resident for South African tax purposes.
A South African resident is defined in section 1 of the Act as a
person (other than a natural person) which is incorporated,
established or formed in the Republic or which has its place of
"effective management" in the Republic, but does not
include any person who is deemed to be exclusively a resident of
another country for purposes of the application of any double tax
agreement entered into by South Africa.
When, for example a company relocates its effective management
and as a result changes its residence to another tax jurisdiction,
the company will cease to be a South African resident (even if the
taxpayer continues to have some or all its operations in South
Africa). In terms of section 9H of the Act, the cessation of South
African residence is deemed to be a disposal for income tax
purposes. The taxpayer is treated as having disposed of its assets
(subject to certain exclusions) for an amount received or accrued
equal to the market value of the assets on the day before ceasing
to be a South African resident and to have immediately reacquired
the same assets at a cost equal to the same market value.
The exit charge does not apply to certain assets, including
immovable property situated in South Africa, or any interest or
right in movable property situated in South Africa (including
interests or rights to an immovable property company); and any
asset which is attributable to a permanent establishment in South
Africa. The Taxation Laws Amendment Bill, No 34 of 2012, the latest
version of which was introduced in the National Assembly on 25
October 2012, proposes amendments to section 9H of the Act to
incorporate the exit charge provisions in the Eighth
Schedule to the Act for, a controlled foreign company that
ceases to be a controlled foreign company (otherwise than by
becoming a resident).
Section 9H will apply to a person or company that ceases to be a
resident, or a company which becomes a headquarter company and a
controlled foreign company that ceases to be a controlled foreign
company, subject to limited exclusions.
In the case of a resident company that ceases to be a resident
or becomes a headquarter company it will be deemed to have
distributed its assets as a dividend in specie in accordance with
each shareholder's effective interest. The company will
therefore potentially be liable for dividends tax, depending on the
availability of any dividends tax exemptions. The amount of the
deemed dividend is deemed to be the market value of the shares in
the company (i.e. the company's gross value net of liabilities)
less the sum of contributed tax capital.
Section 9H will not apply in respect of a company that ceases to
be a resident as a result of an "amalgamation
transaction" or a "liquidation distribution".
Furthermore, where a company ceases to be a controlled foreign
company as a result of the disposal by a person of shares in a
foreign company and such disposal was disregarded for CGT purposes,
section 9H provides that the exit charge will not apply to a
company which ceases to be a CFC.
It is proposed that the amendments to section 9H will come into
operation on 8 May 2012 and apply in respect of any person that
ceases to be a resident, becomes a headquartered company or ceases
to be a controlled foreign company on or after that date.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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