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South Africa
Corporate - Significant developments
Last reviewed - 27 June 2023
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 take effect for tax years ending on or after 31 March 2023:
The scope of the interest limitation rules is expanded to include payments that are economically equivalent to interest, and the fixed-ratio limitation for net interest expense will be limited to 30% of earnings (i.e. tax EBITDA). The limitation will apply 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 February 2023 National Budget announced that a draft position on the implementation of Pillar Two will be published for public comment in 2023 and draft legislation will be prepared for inclusion in the 2024 legislative cycle.
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. In the February 2023 Budget, it was announced that the research and development (R&D) tax incentive will be amended, and the incentive (in its amended form) will be extended for 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.
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 is being reviewed, and it is proposed that the minimum flexible royalty rate be 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.
