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South Africa: Taxation Laws Amendment Bill 2017


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 2018.

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.

Dividend stripping

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 exempt dividends.

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 (

Webber Wentzel

Tel: +27 11 5305886


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