Foreign Currency Law Change Means Lucky (Tax) Break For SA Holding Companies

by Robert Lee, Tax-News.com, London

17 February 2003

The Business Day news service reported on Friday that under the terms of South Africa's recently amended foreign currency laws, unrealised foreign currency gains will no longer be subject to tax, news which is likely to come as a great relief for South African businesses and holding companies.

According to Business Day: 'When the rand depreciated in 2001, SA residents with foreign assets found that their assets were more valuable. However, SA-resident holding companies which had made loans to offshore companies found themselves with an unpleasant side effect - the unrealised gains of such loans were subject to taxation.'

However, under the new laws, which are retrospective to October 1, 2001, a gain or a loss will only be brought to account when the loan is repaid by an SA group to its controlled foreign company.

Speaking to Business Day, Peter Dachs, international tax partner at the Sonnenberg Hoffman Galombik law firm welcomed the news, observing that the taxation of currency gains has in the past been the 'biggest tax issue for SA groups operating offshore due to the rand's volatility and the ever changing nature of the law governing this issue.'

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