Most Read Contributor in South Africa, December 2016
South Africa has a world class investment management industry.
In order to enhance the utilisation of the industry by foreign
investors, giving rise to increased inflows of foreign funds to be
invested in South Africa and the growth of the investment
management industry, there has been a focus by National Treasury on
amending the tax legislation in order to allow non-residents to
utilise the services of a South African investment manager, without
the foreign investment funds being pulled into the South African
tax net. These amendments were mostly made to the income tax
legislation. However, an important consideration which
is often overlooked is the value-added tax ("VAT")
implications in relation to the services rendered by the investment
managers to non-resident investors.
The Value-Added Tax Act No. 89 of 1991 ("the VAT Act")
provides that the supply of certain services to non-residents are
subject to VAT at the zero rate. However, this provision
is limited to, amongst others, supplies of services which are not
in connection with movable property, excluding debt securities,
equity securities or participatory securities, situated in
South Africa at the time the services are rendered.
In order for the above zero-rating provision to find
application, the following important considerations should be borne
The services must be supplied to a person which is not a
resident for VAT purposes. The definition of
"resident" in the VAT Act includes a person which carries
on an enterprise or other activity in South Africa and has a fixed
or permanent place in South Africa relating to such enterprise or
activity. In this regard, the activities which are performed
by the South African investment manager should be carefully
considered in order to determine whether such may give rise to the
non-resident investor becoming a resident for VAT purposes;
Where the assets which are managed by the investment manager
are South African assets (for example shares in South African
companies, bonds issued by south African companies, etc), the
zero-rating provision will only find application if such assets
constitute "debt securities", "equity
securities" or "participatory securities".
These are defined concepts and, whilst fairly wide in application,
may not encompass certain types of derivative instruments.
The applicability of the zero-rating provision in relation to
the fee charged by a South African investment manager is a relevant
consideration in determining whether a South African resident
investment manager who is a VAT vendor will be appointed (as
opposed to a foreign manager) as the VAT component of the
investment management fee is often considered to be material,
especially where performance fees are payable. Should a South
African entity be utilised as a vehicle for a fund, whilst it may
be possible to achieve South African tax neutrality from an income
tax perspective for the ultimate investors, the zero-rating
provision will not be available in respect of the services rendered
to such a fund. As such, foreign investors may be well advised to
consider the appointment of a South African investment manager in
relation to South African portfolio assets on a segregated basis as
opposed to investing into a South African registered fund such as a
collective investment scheme.
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 CRS require the trustees to identify the settlor, beneficiaries and other natural persons exercising ultimate effective control and report the necessary financial information to the relevant foreign revenue authority.
On the 27th of October, 2015, the Tax Appeal Tribunal, Lagos Zone delivered a judgment in favour of the Shell Petroleum Development Company of Nigeria Limited in the above stated case.
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