South Africa: The Private Equity Review (Second Edition)

Last Updated: 5 June 2013
Article by Johan Loubser, Jan Viviers and Andrea Minnaar

Most Read Contributor in South Africa, December 2017


The private equity industry in South Africa is among the most established in emerging markets and has fund types that vary by investment stage, size and sector specialisation. 1

With respect to the size of the industry, at the end of 2011 (the most recent year for which data is available), the industry employed around 500 investment professionals who managed approximately 115 billion rand of assets, located both locally and abroad. 2  The membership of the local industry association, the South African Venture Capital Association ('SAVCA'), includes more than 80 fund manager firms. 3  These numbers include fund managers who raise funds from third parties and fund managers who manage on-balance sheet investments for banks, insurance companies, investment holding companies and government development agencies. At the end of 2011, fund managers managing third-party funds had approximately 52 billion rand of assets under management and undrawn commitments of approximately 21 billion rand. 4  The size of the fundraising market during the 2011 calendar year was estimated to be 8.3 billion rand, of which fund managers who raise funds from third parties raised 4.3 billion rand. The South African private equity industry is dominated by a number of independent fund managers who can point to their successful historical track records, although there are also a fair number of promising new players and fund managers affiliated with local banks and insurers.

While private equity fundraising activity and the success rate thereof has not returned to 2006–2007 levels, the relatively expensive level of equities on the Johannesburg Stock Exchange, regulatory acceptance of investment by South African pension funds in private equity funds, the South African government's renewable energy programme and the remarkable economic growth enjoyed by some sub-Saharan African countries are fuelling renewed interest in private equity investment.

While overall data is not yet available for the 2012 calendar year, significant recent fundraising activity within South Africa included the following:

  1. In November 2012, the Public Investment Corporation, manager of the main South African government employees' pension fund, announced that it had earmarked up to 50 billion rand of its assets under management for investment in African countries other than South Africa. 5
  2. In March 2012, Vantage Risk Capital closed Mezzanine Fund II – which has a pan-African investment focus (with a 35 per cent allocation to opportunities outside South Africa) and can make investments up to 300 million rand in a single transaction – secured 1.9 billion rand of commitments from 14 pension funds, three charitable endowments, two development finance institutions and a family office. 6
  3. In January 2013, Ethos Private Equity raised US$800 million in its latest fund, Fund VI. The investor base spans four continents, and includes more corporate pension and sovereign wealth funds, and fund of funds, than Ethos' prior funds. Fund VI's investment strategy will focus on investing alongside experienced management teams into medium-to-large businesses. Fund VI will invest predominantly in South Africa and selectively into sub-Saharan Africa. 7

In our experience, the fundraising process in South Africa can take between four months to a year, and the main factor determining the speed of the fundraising process is whether the fund management firm or the key individuals of the firm have an established track record in the industry.


As mentioned in Section I, supra, the South African private equity industry includes significant on-balance sheet investment by insurance companies, banks, investment holding companies and government agencies. The legal, tax and regulatory framework within which the above-mentioned industry participants raise funds and funds raised outside South Africa that are earmarked for African or South African investments are not discussed below. The focus of this chapter is on fundraising by fund managers from third parties who invest into closed-ended funds domiciled in South Africa.

i        South African private equity structures

The principal vehicles housing South African private equity funds investing in South Africa are limited liability partnerships (called en commandite partnerships) and trust structures (called bewind trusts). The main reasons for the use of these entities to house funds are the following:

  1. they permit the income and capital gains of the fund to be taxed in the hands of investors according to the tax profile of each investor
  2. they provide investors with limited liability, so that an investor will not have liability exceeding its contractual commitment to the fund;
  3. they are not subject to cumbersome regulatory oversight and can be established with relative ease; they allow the day-to-day affairs of the fund and all operational matters to be outsourced, which permits the fund manager a high degree of autonomy; and
  4. they permit the use of the types of contractual terms and organisational practices that are commonly used internationally.

Limited liability partnership

An en commandite partnership is established by contract. The contract between the parties should expressly reflect the intention of establishing an en commandite partnership and should expressly identify the general or disclosed partner. 8  There are no registration requirements for establishing, and no legislation regulating, en commandite partnerships. An en commandite partnership is carried on by one or some of the partners, called the general or managing partner, to which every partner whose name is not disclosed, called a commanditarian partner or partner en commandite, contributes a fixed sum of money on condition that he or she receives a certain share of the profit, if there is any, but that in the event of loss he or she is liable to his or her co-partners to the extent of the fixed amount of his or her agreed capital contribution only. Because commanditarian partners are undisclosed, this means that they:

  1. are not presented as partners (and accordingly, persons dealing with the partnership do not form the mistaken impression that they are entitled to rely on the credit of the commanditarian partner);
  2. are not liable for partnership debts to creditors of the partnership, but only to their co-partners (and therefore enjoy the benefit of limited liability);
  3. may not participate actively in the business of the partnership (although the commanditarian partner may be entitled to advise the managing partner and may also enjoy limited consent rights); and
  4. cannot claim repayment of their contributions or payment of their share of the partnership profits in competition with the creditors of the partnership. 9

The general partner of the en commandite partnership has unlimited liability toward creditors of the partnership in circumstances where the partnership's assets are insufficient to settle relevant debts. The en commandite partnership usually terminates by agreement between all the partners or in accordance with the terms of the partnership agreement, which may, for example, provide that the general partner may terminate the partnership on notice to the other partners. All commercial aspects of the partnership, such as profit share arrangements, permitted expenses, investment restrictions and so forth, are usually contained in the partnership agreement. The partners have wide discretion to arrange their affairs in the partnership agreement in accordance with their commercial intentions, provided that the partnership adheres to the requirements for an en commandite partnership (and subject to general requirements for enforceable contracts, such as the requirement that the terms of the agreement should be sufficiently certain). The terms of the partnership agreement are not publicly available. En commandite partnership agreements usually provide for the removal and replacement of the general partner. In terms of common law legal requirements, such removal and replacement would usually require the consent of all creditors of the en commandite partnership.

Bewind trust

A bewind trust differs from other forms of trusts under South African law in that the trustees do not own, but merely hold and administer, the assets of the trust that are owned in undivided shares by the beneficiaries of the trust. 10  The trust property does not form part of the estate of the trustee 11  except insofar as the trustee is a beneficiary. The trust is established by way of a trust deed. Copies thereof may be requested from the Master of the High Court by any person who has, in the opinion of the Master, sufficient interest therein. 12 The trustees may not act as such until they have been authorised to do so by the Master 13 after following a simple registration process. The Master has limited regulatory powers in relation to the trust in terms of the Trust Property Control Act, 1988 and may, for example, in certain instances remove the trustee or apply to court for his or her removal. 14

Fund organisation

In the South African context, the vehicle housing the private equity fund (whether a partnership or a trust) would typically appoint the fund manager or adviser in terms of a written mandate to manage the day-to-day affairs of the fund and to identify and execute investments and disinvestments. Increasing use is also made of independent valuators.

Although practice varies, the fund manager or adviser would not always have direct contractual obligations to specific investors (save if created by way of a side letter) and would in many cases only owe contractual obligations to the trust or partnership housing the fund.

Although it is standard practice for the attorneys advising on the establishment of the fund to issue an opinion confirming that the applicable agreements have been duly authorised and are lawful, valid and enforceable, such opinion is often given to the fund rather than applicable investors.

The matters typically addressed in the applicable trust deed or partnership agreement have, over time, to a large extent become standardised. Investors in a South African private equity fund could expect contractual provisions dealing with the following matters, among others:

  1. minimum investment requirement for the fund manager, adviser or associate;
  2. the admission of further investors following the first closing;
  3. time periods for the making of investments and disinvestments by the fund;
  4. investor default;
  5. guidelines, requirements and prohibitions relating to investments;
  6. the composition and functions of the investor advisory board;
  7. reporting requirements;
  8. key personnel assurances;
  9. conflicts of interest;
  10. co-investments;
  11. allocation of expenses;
  12. distributions (including whether distributions must be in cash and clawback provisions);
  13. carried interest (in this regard, investors increasingly insist that the carried interest be calculated over the life of the fund and that distributions of carried interest be kept in escrow);
  14. fees of the adviser or fund manager;
  15. replacement of the fund manager;
  16. limitations of liability for managers; and
  17. termination of the fund.

ii        Marketing of South African private equity funds

Investors commit to the fund by signing deeds of adherences to the partnership agreement or trust deed, as the case may be. Fundraising is typically organised by the fund manager, and in some cases investors are introduced to the fund by way of the distribution of a short-form private placement memorandum, which functions as a summary of the applicable terms. The key matters disclosed in such a memorandum would include the historic success of the fund manager, the fee, any carried interest arrangements, and whether any investor commitments have already been received and the amount thereof. In addition, the Conditions for Investment in Private Equity Funds 15  applicable to South African pension funds contains a checklist of prescribed due diligence matters that a pension fund must consider before investing in a private equity fund. It is likely that future private placement memoranda will be structured in order to provide comfort in relation to the items on this prescribed checklist.

Partnerships and trusts could in theory satisfy all of the requirements of a collective investment scheme and fall to be regulated as such in terms of the Collective Investment Schemes Control Act, 2002 ('CISCA') if 'members of the public' are invited and then permitted to invest. Since there is currently no licensing scheme in place to regulate private equity funds under CISCA, triggering the application of the legislation by inviting or permitting members of the public to invest in the fund could result in the fund being unlawful and persons involved in the administration of the fund being criminally liable. 16  For this reason, it is not advisable for any person to advertise investment opportunities in a private equity fund in the press or for private placement memoranda to be made available indiscriminately. Moreover, although the statutory limit on the number of partners in a partnership was abolished in 2010, 17  it remains prudent to limit the number of investors in the fund in order to counteract any suggestion that 'members of the public' are permitted to invest, but there is no bright line as to how many partners or investors would be too many.

There is a measure of uncertainty and debate as to whether the investor's partnership interest or interest in a bewind trust housing a private equity fund would constitute a 'financial product' under the Financial Advisory and Intermediary Services Act, 2002 ('FAIS'). If so, then persons who provide advice in respect thereof to potential investors or otherwise provide an intermediary service in relation to any such investment as a regular feature of their business may fall to be regulated under FAIS. The uncertainty arises because, although the applicable partnership or trust interest would provide the investor with undivided ownership (together with other investors) in the shares of portfolio companies (which shares are indeed 'financial products'), the partnership or trust interest itself is not a 'security' or 'instrument', although it could amount to a 'combined product containing' financial products, such as shares. 18  Given this uncertainty, the prudent approach is to limit marketing of the applicable interest within South Africa to financial services providers authorised under FAIS. As will be seen below, the fund manager is usually so licensed.

Where FAIS applies, it imposes the duty on the relevant financial services provider to render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry. 19 Apart from FAIS, the fund manager or other promoters could potentially attract contractual or delictual liability pursuant to, for example, non-performance, negligent misrepresentation or fraud. There is no well-developed body of case law dealing with such liability in the context of private equity funds.

iii        Investment clubs

A new trend, which has proven to be successful in the United Kingdom, is also being adopted in South Africa. This entails the formation of an investors' club or circle of persons who are generally high-net-worth individuals, although there is no reason why this structure cannot include institutional investors. In this structure, investors pay an annual fee to the investors' club, which is managed by the private equity fund manager, and in return are afforded the opportunity to invest in investment opportunities identified by the fund manager and brought to the investors' club. Investors are not required to provide committed capital and can elect which investment opportunities they wish to participate in, subject to certain rules of the investors' club. Each investment would typically be housed in a separate en commandite partnership or bewind trust. This structure is flexible and gives investors greater control over the particular investments making up their bouquet of investments.

iv        Tax and exchange control

To encourage the use of South Africa as a springboard for investment into Africa, the government has over the past few years made significant changes to the country's tax and exchange control regime, which was in the past fairly unfavourable to outward investment and to the management of offshore investments from South Africa. Such changes include various amendments to the tax legislation to prevent the activities of South African investment managers from causing the investments of non-South African investors to be taxed in South Africa.

General principles

Both en commandite partnerships and bewind trusts are fiscally transparent vehicles for South African tax purposes. All of the tax implications in respect of the underlying investments of the fund will accordingly arise directly in the hands of the relevant investors.

South African investors in such partnerships or trusts will be required to include income generated in respect of the underlying assets in their gross income and will be taxed in accordance with the tax regime applicable to such investors. Dividend income on shares in South African companies will generally be exempt from income tax in South African investors' hands 20 (subject to certain exceptions in respect of preference share type investments), 21 while any dividends 22 on shares in non-South African companies or interest income will generally be subject to income tax in South African investors' hands. Dividends on shares in South African companies may be subject to dividends withholding tax, subject to certain exemptions that may depend on the nature of the investor (e.g., if the investor is a South African company, the dividend should be exempt from dividends tax). 23

Non-South African investors will only be required to include income generated in respect of the underlying assets in their gross income if the income is from a South African source. 24 This will be the case, inter alia, in respect of interest on loans applied in South Africa and dividends on shares in South African companies. 25 Such dividends will generally be exempt from income tax in the non-South African investors' hands 26 (subject to certain exceptions in respect of preference share-type investments). 27 Any interest income should be exempt from income tax in the non-South African investors' hands, unless it is a natural person investor who has been physically present in South Africa for more than 183 days in the 12-month period during which the interest was received, or if the non-South African investor has a permanent establishment in South Africa. 28 Provided certain requirements are met, the actions of the general partner or trustees should not result in the non-South African resident investor having a permanent establishment in South Africa. 29 Any dividends declared by a South African company or interest from a South African source that is paid to a non-South African resident investor will be subject to dividends withholding tax 30 and, with effect from 1 July 2013, interest withholding tax, 31  respectively (subject to certain exemptions and any available treaty relief).

Any gains in respect of a disposal of the underlying assets may give rise to income tax or capital gains tax implications in the hands of the South African investors, depending on whether the investor trades in the underlying assets or not, which will be taxed in accordance with the tax profile of the applicable investor. Generally, non-resident investors will only be subject to South African tax in respect of such disposals if they have a permanent establishment in South Africa (see above). 32

An en commandite partnership and a bewind trust give rise to complexity from a tax perspective in respect of exiting partners or the admission of new partners. Every time a new partner or beneficiary enters the partnership or bewind trust, on a technical basis, each of the partners or beneficiaries will dispose of a portion of the underlying investments to the new partners or beneficiaries, which may cause potential tax implications on unrealised gains for the other partners or beneficiaries.

Carried interest

Where a fund manager or an affiliate of the fund manager obtains an additional distribution from the applicable fund, there has been an ongoing international debate as to whether such carried interest is subject to capital gains tax or income tax. The debate is currently unresolved.

Non-South African private equity funds directly investing into South African companies

In respect of non-residents, South Africa imposes income tax on amounts from a South African source. As discussed above, interest on loans applied in South Africa and dividends on shares in South African companies are deemed to be from a South African source. 33 A non-resident fund will accordingly be required to include such interest or dividends in its gross income, but should be entitled to an exemption in respect of the dividends34 (subject to certain exceptions in respect of preference share type investments) 35 and any interest income should be exempt from income tax in the non-resident fund's hands, unless it has a permanent establishment in South Africa. 36 Furthermore, any capital gains will be subject to tax in South Africa if the fund has a permanent establishment in South Africa. 37

Furthermore, the activities of a South African fund manager may result in the gains on the underlying investments being from a South African source. This issue has largely (but not completely) been resolved in terms of the recent introduction of the deemed source rules. 38

In addition, as discussed above, non-resident investors will be subject to dividends withholding tax 39 and, with effect from 1 July 2013, interest withholding tax 40 in respect of dividends on South African shares or interest on loans applied in South Africa that is paid to them (subject to certain exemptions and any available treaty relief).

Furthermore, should the fund be managed in South Africa, this may result in the fund being effectively managed in South Africa, in which case the fund may become a South African tax resident with the result that its income and capital gains will be subject to tax in South Africa. Recently, statutory provisions have been introduced in terms of which a foreign investment fund (which is a defined concept) will not be effectively managed in South Africa by reason of having a South Africa fund manager, meaning that having a South Africa fund manager will not result in a non-resident fund becoming a South African resident provided the requirements of the relevant provisions are met. 41

Exchange control

South African residents are generally prevented from transferring capital to any country outside the common monetary area, subject to a number of exceptions. In relation to South African private equity funds wishing to invest outside of South Africa, such investment will generally be made through an institutional investor, utilising its institutional investor allowance. An institutional investor allowance is available to certain institutional investors and fund managers in South Africa, subject to limitations (institutional investors' foreign exposure of retail assets may not exceed 25 per cent in the case of retirement funds and the underwritten policy business of long-term insurers, and fund managers registered as institutional investors, collective investment scheme management companies and the investment-linked business of long-term insurers are restricted to 35 per cent of the total retail assets under management).

Private equity funds that are members of SAVCA, mandated to invest into Africa, may apply to the Financial Surveillance Department of the South African Reserve Bank for approval to invest into Africa (information that must accompany the application includes a copy of the local en commandite partnership's mandate to invest into Africa or, in the case of a local fund running parallel with an offshore fund, a copy of the co-investment agreement between the local and foreign partnership, cash-flow projections for a 36-month period indicating the amount of capital to be exited from South Africa for investment purposes into Africa, and confirmation that the local private equity fund will obtain a minimum of 10 per cent of the voting rights in the respective investment into Africa). In the context of a local fund running parallel with an offshore fund where the private equity fund is managed from South Africa, the minimum 10 per cent requirement may be measured on a fund-wide basis, after the conversion of investment rights into voting rights. Applications will also be considered where an unintended loop structure is created as a result of private equity funds investing into companies in the rest of Africa with a portion of their business in South Africa.

v        Offshore structures

For reasons relating to South African tax legislation, South African private equity managers have in the past often created parallel offshore structures within which to house investments from non-resident investors and which offshore funds co-invested with South African-domiciled funds. Mauritius and the British Virgin Islands have in the past often been used as the domicile for these parallel structures. Fund managers and their advisers are currently exploring ways in which to avoid parallel offshore structures and the added administrative burden inherent therein.

Because of its wide network of double taxation treaties and low tax rates, Mauritius is a popular jurisdiction for the establishment of private equity funds, including funds with South African investors, and funds that will invest in sub-Saharan African countries other than South Africa or countries within the common monetary area.

It should be noted that certain sovereign fund investors may not invest in funds domiciled in certain jurisdictions.


Private equity funds are not subject to specific regulations and there is no government agency that exercises regulatory oversight specifically over such funds. There is no requirement that a fund be registered with a government agency. Fund managers are, broadly speaking, required to register as financial services providers under FAIS. As mentioned below, fund managers are, from a practical perspective, also required to register as members of SAVCA, the voluntary industry body.

We have discussed the regulatory requirements that apply to the marketing of funds above. Recent regulatory developments that deserve mention are the position with respect to black economic empowerment ('BEE') and the position with respect to pension fund investors.

i        BEE

Since the election of South Africa's first democratic government in 1994, the government has embarked on a comprehensive programme to provide a legislative framework for the transformation of South Africa's economy in order to address racial and other discrimination. In 2003, the Broad-Based Black Economic Empowerment Act, 2003 came into effect. The fundamental objective of the Act is to advance economic transformation and enhance the economic participation of black persons in the South African economy. The Act provides a legislative framework for the promotion of BEE, empowering the Minister of Trade and Industry to issue Codes of Good Practice. In terms of the current Codes of Good Practice, 42  the contributions of South African firms to broad-based BEE are measured in accordance with a detailed prescribed scorecard. Apart from providing corporate South Africa with measurement tools to track their contribution to economic transformation, achieving a good BEE score may aid a firm to win business, both from the government and the private sector.

In this regard, the current Codes of Good Practice permit a portfolio company to regard all of its shares held by a private equity fund as being held by black persons if, among other things:

  1. black persons hold more than 50 per cent of the votes and will receive more than 50 per cent of the distributed profits of the private equity fund;
  2. the fund manager is more than 50 per cent owned by black persons; and
  3. more than 50 per cent of the acquisition cost of the investments of the fund are invested in majority black-owned enterprises that were at least 25 per cent black-owned before investment by the private equity fund. 43

Draft new Codes of Good Practice published for public comment in 2012 44 propose significant amendments to the above requirements, having the effect that portfolio companies would be entitled to regard all of the shares held by a private equity fund as being held by black persons if, in relation to the fund manager (and not the fund), black persons hold more than 50 per cent of the votes and will receive more than 50 per cent of the profits (including carried interest earned by the fund manager or its associate); or the fund manager is more than 50 per cent owned by black persons and, over time, more than 50 per cent of the acquisition costs of the investments of the fund are invested in enterprises that were at least 25 per cent black-owned at the time of investment by the fund. 45

If the new draft Codes are finalised in their current form, then a significant incentive will be created for portfolio companies to ensure that their shares are held by private equity funds who can show compliance with the above requirements, and this will in turn create a significant impetus for the creation of black-owned private equity fund managers.

ii        South African pension funds

The prudential investment limits for pension funds registered under the Pension Funds Act, 1956 were recently amended to expressly permit pension funds to invest up to 10 per cent of their assets in private equity funds (with sub-limits of 2.5 per cent per private equity fund and 5 per cent per fund of funds). In terms of the regulatory framework, the Registrar of Pension Funds published Conditions for investment in private equity funds ('the Conditions') in March 2012 46 that stipulate requirements in order for a private equity fund to qualify for investment by a pension fund. The Conditions came into effect on 30 September and 31 December 2012. 47 Although the applicable requirements do not bind private equity funds, pension funds are significant investors and private equity funds therefore have a strong incentive to comply.

The most significant requirements contained in the Conditions are the following:

  1. permissible local private equity structures are limited to en commandite partnerships, bewind trusts and companies; 48
  2. fund managers must be members of SAVCA 49 and are required to be authorised as discretionary financial services providers under FAIS – a category of licence that many fund managers did not hold before the Conditions were published; 50
  3. the auditors of the private equity fund must verify the assets of the fund on a biannual basis 51  and the fund must produce audited financial statements complying with international financial reporting standards within 120 days of the end of its financial year; 52
  4. the private equity fund must have clear policies and procedures for determining the fair value of the assets of the fund in compliance with the International Private Equity Valuation Guidelines, and any valuations must be verified at least annually by a third party; 53 and
  5. the pension fund must consider a list of prescribed due diligence matters before investing in a private equity fund, including the fee structure of the private equity fund and the risk and compliance policies and procedures of the private equity fund. 54

In our experience, the Conditions have affected the contractual terms of new private equity funds in that pension funds seek warranties from the private equity fund and the fund manager that they will adhere to the requirements set out in the Conditions and wish to see that the contractual terms expressly address the checklist of due diligence matters prescribed by the Registrar.


Apart from the finalisation of the Codes of Good Practice relating to BEE and the possible impetus that may provide to black-owned fund managers, we do not anticipate major regulatory or tax changes affecting the private equity industry in the coming 12 months. Since many funds were established some years ago, increased exits from existing private equity investment as well as increased fundraising activity can be expected. Although South African private equity funds are likely to have increased exposure to sub-Saharan African countries other than South Africa, the current trend is for most South African private equity funds to maintain a primary focus on investment in South Africa.

Footnotes (12 March 2013).

2KMPG and SAVCA, Venture Capital and Private Equity Industry Performance Survey of South Africa covering the 2011 calendar year, published in May 2012, pp. 50, 52.

3See (2 February 2013).

4See footnote 2, p. 52.

5See (4 February 2013).

6See (3 February 2012).

7See (6 February 2013).

8The Law of South Africa ('Lawsa' ) Vol. 19, JJ Henning Partnership, Paragraph 260.

9Id., Paragraph 258.

10Lawsa Vol. 31, MJ De Waal and others; Trusts, Paragraph 531.

11Section 12 of the Trust Property Control Act, 1988 ('the Trust Property Control Act').

12Section 18 of the Trust Property Control Act.

13Section 6(1) of the Trust Property Control Act.

14Section 20 of the Trust Property Control Act.

15See the discussion below.

16See Sections 5 and 115(b) of CISCA.

17The Companies Act No. 71 of 2008 does not contain a prohibition similar to that contained in Section 30 of the Companies Act No. 61 of 1973.

18Definition of 'financial product' in Section 1 of FAIS.

19Board Notice 80 of 8 August 2003: General Code of Conduct for Authorised Financial Services Providers and Representatives, Paragraph 2.

20See Section 10(1)(k)(i) of the Income Tax Act No. 58 of 1962 ('the Income Tax Act').

21The Income Tax Act deems the dividends on certain shares containing debt-like characteristics to be income in the hands of the recipient. These rules, found in Sections 8E and 8EA of the Income Tax Act, have been subject to extensive amendments over the past two years. The latest set of amendments were introduced in terms of the Taxation Laws Amendment Act No. 22 of 2012 ('the TLAA'), which was promulgated on 1 February 2013 (a number of the amendments, however, attempt to operate retrospectively). The amended rules impact, among others, on the type of security arrangements that may be utilised in respect of preference share funding as well as the purpose for which the funding may be utilised.

22South African investors are required to include foreign dividends in their income. Certain exemptions (see Section 10B of the Income Tax Act) are available in respect of foreign dividends. The general exemptions achieve an exemption of foreign dividends to the extent that the dividend is effectively only subject to income tax at a rate of 15 per cent (which equates to the dividends withholding tax rate in respect of dividends distributed by South African companies). In certain instances the full dividend may be exempt, for example where the South African resident holds at least 10 per cent of the shares in the foreign company.

23The dividends withholding tax regime was introduced on 1 April 2012 and is contained in Part VIII of the Income Tax Act. Dividends withholding tax is levied at a rate of 15 per cent, subject to certain exemptions, and a reduction of such rate in terms of any applicable treaty.

24See the definition of 'gross income' in Section 1 of the Income Tax Act.

25Historically, the Income Tax Act did not provide specific source rules, which were determined largely with regard to tests laid down by the courts. With effect from 1 January 2012, certain deemed source rules were introduced in Section 9(2) of the Income Tax Act. These rules provide, inter alia, that dividends distributed by South African companies and interest on loans attributable to an amount incurred by a South African resident, or that are received or accrue in respect of the utilisation or application in South Africa by any person of any funds or credit, will be deemed to be from a South African source.

26See Section 10(1)(k)(i) of the Income Tax Act.

27See footnote 21.

28See Section 10(1)(h) of the Income Tax Act.

29The definition of 'permanent establishment' in Section 1 of the Income Tax Act has been amended with effect from 1 January 2011 to exclude the activities of certain general managers and trustees from creating a permanent establishment for qualifying investors. A 'qualifying investor' is a defined concept – see Section 1 of the Income Tax Act.

30See footnote 23.

31Various sets of amendments have been introduced into the Income Tax Act over the past couple of years in order to introduce an interest withholding tax system. The most recent version of such provisions has been included in the Income Tax Act by the TLAA and will come into effect on 1 July 2013. Interest withholding tax will be levied at a rate of 15 per cent, subject to certain exemptions (including in respect of debt listed on certain exchanges) and a reduction in the rate in terms of any applicable treaty.

32The new deeming source rules (see footnote 26), simplistically speaking, provide that gains made in respect of the disposal of an asset by a non-resident is only deemed to be from a source in South Africa if it is attributable to a permanent establishment of the non-resident in South Africa. Furthermore, the capital gains tax provisions contained in the Eighth Schedule to the Income Tax Act only apply to non-residents in respect of certain immoveable property or interests in immovable property situated in South Africa or assets attributable to a permanent establishment of the non-resident in South Africa.

33See footnote 25.

34See footnote 26.

35See footnote 21.

36See footnote 28.

37See footnote 32.

38See footnote 25.

39See footnote 23.

40See footnote 31.

41This has been effected in terms of an amendment to the definition of 'resident' in the Income Tax Act, which was introduced by the TLAA with effect from 1 January 2013.

42General Notice 112 of 2007, Gazette No. 29617 of 9 February 2007.

43Page 26 of the Codes, Paragraph 5.

44See Notice 800 of 2012, Government Gazette 35754 of 5 October 2012.

45Id., pp. 15 to 17, Paragraph 5.

46Conditions for investment in private equity funds; approval in terms of Section 5(2)(e) of the Pension Funds Act, 15 March 2012.

47See Notice No. 5 of 27 September 2012, in terms of which the Registrar of Pension Funds granted an extension of one of the conditions from 30 September 2012 to 31 December 2012.

48Condition 2(1).

49Condition 2(2).

50Condition 3(1).

51Condition 6.

52Condition 9(1).

53Condition 8.

54Condition 7.

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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  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions