Most Read Contributor in South Africa, September 2016
The Taxation Laws Amendment Bill 2016 has been released for
public comment. It introduces various interesting amendments to
South Africa's tax law, which include the following:
Use of trusts
In circumstances where an interest-free loan has been advanced
to a trust by a connected person (which includes a beneficiary or a
relative of a beneficiary), it is proposed that a market-related
rate of interest (currently 8%) is deemed to be paid on that loan.
This deemed interest will not be tax deductible in the hands of the
trust but will be taxable in the hands of the lender and will not
qualify for an interest exemption.
To the extent that the tax payable by the lender in respect of this
inclusion is not recovered from the trust within three years, this
will be treated as a donation to the trust and donations tax will
be imposed thereon at the rate of 20%.
Hybrid debt instruments
The interest paid on various debt instruments with certain
specified equity features is currently treated as a dividend for
tax purposes. This means that no deduction is granted in respect of
such interest for the borrower and, conversely, the lender receives
a tax-exempt dividend.
These provisions are being amended. Firstly, where such debt
instruments are issued by a non-resident entity, the hybrid debt
rules will only apply if such non-resident entity issues the debt
instrument from a South African permanent establishment or if the
non-resident entity is a controlled foreign company of South
The rules are also being amended to state that where such hybrid
debt instruments are subject to, for example, put and call
arrangements in terms of which the holder has the right to transfer
such debt instrument to another party, the hybrid debt provisions
will not apply. This brings the hybrid debt rules in line with the
rules relating to preference shares.
International tax amendments
The proposed withholding tax on service fees has been withdrawn.
This means that the proposed 15% withholding tax that was to be
imposed on technical, management and consulting services will no
longer be introduced.
South Africa, therefore, imposes withholding taxes on royalties,
interest and dividends at a rate of 15%.
Share incentive schemes
In respect of various share incentive arrangements, individuals
are taxed on the difference between the market value of the shares
on date of vesting and any amounts paid for such shares.
This meant that certain dividends paid on these shares prior to
vesting were exempt from income tax in the hands of such
It is now proposed that such dividends declared prior to vesting
of the shares will be subject to income tax in the hands of the
Special Voluntary Disclosure Programme
The South African Reserve Bank has also issued a long-awaited
media statement which sets out the detailed proposals regarding the
joint tax and exchange control Special Voluntary Disclosure
Programme ("SVDP"). This provides much
needed certainty around the process to apply for the SVDP.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).