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New South
Africa Tax Laws come into force in 2009
The new Revenue laws amendment bill is in the process of being enacted. This bill introduces the new dividend definition referred to in previous articles. This is part of the process in South Africa of moving to a 10% dividend withholding tax. In this regard the South African Revenue Service has re-negotiated key double tax agreements in order to allow South Africa at least a 5% taxing rights in respect of dividends declared by South African entities to non-resident shareholders. There is no dividend withholding tax envisaged in respect of foreign dividends paid to South African residents. Essentially the withholding tax will be imposed on dividends declared by South African companies to individuals, to non-resident shareholders and to passive holding companies. The latter is an anti tax-avoidance measure intended to prevent individuals setting up companies to receive dividends and thereby avoiding the withholding tax. The new legislation also deals with deductions in respect of intellectual property. It introduces a concept of tainted intellectual property and restricts deductions in respect of expenditure for the right to use such intellectual property. The idea is to avoid intellectual property being developed in South Africa, allowances being claimed in respect of such intellectual property in South Africa and then transferring such intellectual property to an offshore entity and licensing it to a South African entity. This provision will come into force from January 1 2009. In the medium term budget which took place earlier in October, no significant comments were made regarding further tax or exchange control amendments. The next opportunity for any such amendments will be in the budget speech in February 2009. In volatile markets taxpayers should watch out for currency gains or losses. In particular different instruments have different tax rules which apply to them. However it is often the case that when calculating a capital gain a South African resident is required to determine its base cost in that asset by translating the foreign denominated base cost to the rand at date of acquisition of the asset and then translating the foreign proceeds on disposal of the asset to the rand on date of disposal. This therefore captures any currency movements which can be significant. In particular, the rand has moved from R6.90: $1 in January 2008 to above R11: $1 in October 2008. There has been talk of abolishing the participation exemption in respect of capital gains on foreign shares. However, this has not occurred. The participation exemption broadly applies where a South African taxpayer holds at least 20% of the ordinary shares in a foreign entity and disposes of these shares to a non-resident entity after holding such shares for at least 18 months. It is still necessary for the taxpayer to demonstrate that the gain is capital in nature as opposed to part of a scheme of profit making in order to benefit from this exemption. Peter Dachs (pdachs@ens.co.za) All material subject to strictly enforced copyright laws. © 2009 Euromoney Institutional Investor PLC. |
