Following public consultation on the draft bill earlier in
the year, the final version of the 2017 Taxation Laws Amendment
Bill (TLAB) is now before Parliament.
Broadening of CFC rules
In the draft TLAB, measures were proposed to bring within
the controlled foreign company (CFC) net, foreign companies
held by discretionary foreign trusts with one or more South
African tax resident beneficiaries. The proposals were very
broad in scope and would have affected many structures that
were in no way tax driven. Following extensive lobbying, these
proposals have been dropped in the TLAB. However, the
definition of a CFC has been expanded to include a foreign
company, the financial results of which are included in the
consolidated financial statements as contemplated in IFRS 10 of
any company that is a South African tax resident. This will
apply in years of assessment commencing on or after January 1
Foreign employment income
Another controversial proposal in the draft bill related to
the repeal of the exemption for foreign employment income
derived by South African tax residents working abroad. The
exemption applies to employment income of South African
resident individuals who are outside South Africa rendering
services for their employer for a period exceeding 183 days (60
days of which must be continuous) during any 12-month period.
Instead of an outright repeal, the TLAB now proposes a narrowed
exemption with a deferred implementation date of March 1 2020.
After this date, the first ZAR 1 million ($73,000) of foreign
remuneration will be exempt from tax in South Africa if the
individual is working outside South Africa for more than 183
days (including a continuous period of at least 60 days) during
any 12-month period.
With regard to disposals made on or after July 19 2017, i.e.
with retrospective effect, all "extraordinary dividends",
regardless of how they are funded, paid to certain shareholders
within 18 months prior to, or by reason of, a disposal of any
of their shares (including on liquidation) will be treated as
part of the disposal proceeds. These amounts may consequently
be taxable at capital gains tax rates rather than qualifying as
An extraordinary dividend is any dividend that exceeds 15%
of the higher of the market value of the share at the beginning
of the 18-month period and its value as at the date of
disposal. In the context of preference shares, where dividends
are calculated with reference to an interest rate, dividends
exceeding a 15% rate will qualify as extraordinary.
The rules will apply to any shareholder that holds, alone or
together with any connected person(s), at least 50% of the
ordinary shares or voting rights in an unlisted company (or at
least 20%, if no other shareholder owns a majority of the
shares or voting rights). These thresholds drop to 10% if the
company is listed.
The tax neutral rollover group relief provisions that would
normally apply in the context of a qualifying liquidation
distribution or an amalgamation transaction will no longer
override the dividend stripping provisions with effect from the
date of promulgation of the TLAB.
Anne Bennett (email@example.com)
Tel: +27 11 5305886