South Africa Plans Changes To Offshore Taxation Rules

by Robert Lee, Tax-News.com, London

08 September 2005

The tax liability of profit generated offshore by a South African company will be assessed according to the level of South African ownership under new plans proposed by the South African Revenue Service (SARS).

Under the draft Revenue Laws Amendment Bill, released last month, a firm's income will be taxed in South Africa where more than 50% of South African shareholders exercise voting control in the foreign arm of the domestic company or the parent company.

The current tax law situation dicates that any income earned by an offshore company controlled from South Africa, otherwise known as a controlled foreign entity, is liable to be taxed if South African tax residents hold rights to the offshore unit’s capital and profit.

According to tax experts, multinational groups that have offshore operations would be required to take a tax test in order to qualify for exemptions to the new rules. If they do not qualify, they will be taxed at 29%.

Intellectual property disposed of by foreign branches will be exempt from tax in South Africa under the proviso that the company has held such property for at least 18 months. The proposed changes also reduce the burden of paperwork needed by companies to gain tax breaks on overseas activities.

In addition, the new rules will remove the requirement for insurance, banking and financial services companies to apply for licences from the banking authorities to carry out activities overseas.

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