South Africa

Corporate - Income determination

Last reviewed - 13 December 2019

Inventory valuation

Inventories generally are stated at the lower of cost or net realisable value. Write-downs of inventory for slow-moving and obsolete items must be justified, and a general policy on a percentage basis is not permitted. Last in first out (LIFO) is not accepted for tax purposes.

Capital gains

Although the capital gains tax forms part of income tax, the two taxes are not fully integrated. While gains realised by companies are taxed at the normal CIT rate, only 80% of gains are included in taxable income, making the effective capital gain tax rate for companies 22.4%.

Dividend income

Dividends are generally taxed in the hands of the beneficial owner at a rate of 20% (see Dividends tax in the Taxes on corporate income section). Dividends tax is withheld by the company declaring the dividend on behalf of the shareholder receiving it. In specie dividends are subject to tax in the hands of the company and not the beneficial owner.

Foreign dividends received by or accrued to an SA-resident taxpayer are included in income based on a formula and taxed at the normal CIT rate, which results in an effective tax rate of 20%. Qualifying foreign dividends are also generally not subject to tax where they are received by resident shareholders holding in excess of 10% of the equity shares and voting rights of the company declaring the dividend. Dividends received by residents holding less than 10% of such shares will generally be taxable in South Africa, subject to a tax credit for foreign taxes payable by the recipient shareholder.

Stock dividends

Stock dividends (capitalisation issues of shares) are not subject to CIT or dividends tax.

Interest income

Interest income of resident companies is taxed at the normal CIT rate.

Interest received by a non-resident company is only subject to CIT if the debt claim in respect of which it is paid is effectively connected with a PE of that non-resident company in South Africa during the tax year, and where that non-resident company is registered as a taxpayer in South Africa.

A 15% withholding tax (WHT) applies to interest paid on certain debt instruments to non-resident companies and where the interest is not subject to CIT.

Royalty income

Royalty income of resident companies is taxed at the normal CIT rate.

Royalty income received by a non-resident company is only subject to CIT if the property in respect of which the royalty income is paid is effectively connected with a PE of that non-resident company in South Africa during the tax year, and where that non-resident company is registered as a taxpayer in South Africa.

A 15% WHT applies to royalties paid to non-resident companies where the royalties are from a South African source and where the interest is not subject to CIT.

Foreign income

Foreign income of an SA-resident company is subject to tax in South Africa on the earlier of receipt or accrual. However, income that may not be remitted to South Africa in terms of the laws of the country where the amount arose is deferred until the income can be remitted. Double taxation may be avoided under certain DTAs or by way of unilateral credit or deduction for foreign tax payable on foreign income (see Foreign tax credit in the Tax credits and incentives section).