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South Africa
Corporate - Significant developments
Last reviewed - 08 December 2023
In November 2023 South Africa joined 47 other countries in agreeing to adopt the Crypto-Asset Reporting Framework.
The corporate income tax (CIT) rate was reduced to 27% (from 28%) for tax years ending on or after 31 March 2023.
Base broadening measures related to the restructure of the CIT system proposed a limitation on the use of assessed losses and on interest deductions. The following measures took effect for tax years ending on or after 31 March 2023:
The scope of the interest limitation rules were expanded to include payments that are economically equivalent to interest, and the fixed-ratio limitation for net interest expense was limited to 30% of earnings (i.e. tax EBITDA). The limitation applies to interest on debt with persons in a controlling relationship where the interest is not subject to tax in the hands of the recipient.
Tax losses carried forward may only be applied against 80% of taxable income, subject to a 1 million South African rand (ZAR) de minimis provision.
South Africa is one of the members of the Steering Group of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The draft legislation for the implementation by SA of the Pillar Two legislation was published for public comment on 21 February 2024 and the draft legislation proposes to introduce two measures to effect the Pillar Two proposals, namely an income inclusion rule and a domestic minimum top-up tax for qualifying multinationals for years of assessment commencing on or after 1 January 2024.
The government is conducting a comprehensive review of all corporate tax incentives, with a view to further broaden the CIT base and to avoid complicated tax incentives that reduce progressivity by unfairly advantaging specific sectors or groups of taxpayers and that hamper efficient administration of the tax system. The research and development (R&D) tax incentive has been amended, and the incentive (in its amended form) is available for a period of ten years from 1 January 2024.
An expanded renewable energy tax incentive has been introduced for the period 1 March 2023 to 28 February 2025 to alleviate the energy crisis. The incentive takes the form of a 125% deduction in the first year for renewable energy generation projects
To encourage the production of electric vehicles in South Africa, Budget 2024 proposed that an investment allowance be made available for new investments from 1 March 2026 in terms whereof producers will be able to claim 150 per cent of qualifying investment spending on production capacity for electric and hydrogenâpowered vehicles in the first year of investment.
The first phase of the carbon tax has been extended by three years for the period 1 January 2023 to 31 December 2025. There is a substantial increase in the carbon tax rate trajectory from 1 January 2023 onwards. Allowances are likely to decrease over time.
The tax regime for the upstream petroleum industry was reviewed, and the minimum flexible royalty rate has been increased from 0.5% to 2%. The maximum rate will remain 5%.
South Africa ratified the BEPS Multilateral Instrument (MLI) in September 2022. The MLI entered into force for South Africa on 1 January 2023.
A non-resident employer who conducts business through a permanent establishment (PE) in South Africa will be required to register for payroll taxes and to withhold and pay over such taxes to the South African Revenue Service (SARS), as applicable.
