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South Africa Reviewing Corporate Migration Tax Rule

by Lorys Charalambous, Tax-News.com, Cyprus

10 June 2015


The South African National Treasury has issued initial consultation drafts on corporate migration tax measures to be included in the 2015 Taxation Laws Amendment Bill, which will be published for public comment in the first half of July 2015.

The National Treasury noted that, with effect from April 1, 2014, changes were made in the Income Tax Act to prevent South African resident companies from obtaining a tax advantage when issuing shares as consideration for the acquisition of shares in a foreign company. The change introduced capital gains tax liability for the South African resident company.

Concerns have been expressed that the anti-avoidance measure could be too broad. In order to allow legitimate commercial transactions, it is now proposed that, with retrospective effect from April 1, 2014, the issue of shares by a South African resident company as consideration for shares in a foreign company will no longer be subject to capital gains tax.

However, to counter the base erosion strategies that use participation exemptions to facilitate tax-free corporate migrations, it is also proposed that the disposal of foreign shares by South African residents to connected persons should not benefit from the participation exemption, with effect from June 5, 2015.

In addition, with effect from the same date, it is proposed that upon ceasing to be tax resident in South Africa, any participation exemption benefits previously enjoyed by a South African resident during the three-year period before ceasing to be a resident will be subject to tax.

Written comments on the drafts are due before or on June 26, 2015.

TAGS: capital gains tax (CGT) | South Africa | compliance | tax | business | tax compliance | law | mergers and acquisitions (M&A) | corporation tax | legislation | transfer pricing | tax breaks | Africa | Tax

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