South Africa: Taxation Laws Amendment Bill of 2013 released for public comment

Peter Dachs

This Bill contains many significant amendments to South Africa's tax laws. In respect of domestic law amendments these include the re-characterisation of interest as dividends in circumstances where the debt on which such interest is paid contains certain equity features. In addition, various limitations on interest deductions will be imposed in respect of acquisition indebtedness as well as loans between exempt persons and South African resident companies.

In terms of the proposed amendments to cross-border transactions, listed companies will be able to establish a South African resident subsidiary as a group treasury company. This subsidiary will be able to fund offshore group operations without suffering any South African tax in respect of currency gains. In addition, the subsidiary will be able to manage the group treasury functions free from exchange control restrictions.

It is also proposed that a new tax regime will be introduced to provide tax relief for shipping companies. To qualify for such relief, the company must be a South African resident entity and hold at least one or more vessels that are flagged in South Africa and designed for international transportation of passengers or goods for reward. This proposed tax regime includes exemptions from income tax, capital gains tax, dividends tax and the withholding tax on interest.

It is proposed that South Africa will introduce a withholding tax on cross-border consultancy, management and technical fees. This will constitute a final withholding tax imposed at the rate of 15%. It is proposed that this withholding tax will become effective in respect of fees that are paid or payable on or after January 1 2015. This will align the timing and rate of the withholding tax with those to be imposed on interest and royalties.

Statutory recognition will also be given to the concept of equity loans from a transfer pricing perspective. Therefore, in circumstances where a cross-border loan between connected persons has the necessary equity features, no interest will be imputed thereon under South Africa's transfer pricing rules.

Peter Dachs (pdachs@ens.co.za)
ENS – Taxand

Tel: +27 21 410 2500

Website: www.ens.co.za