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South Africa
Corporate - Significant developments
Last reviewed - 11 December 2024
The Global Minimum Tax Bill for the implementation by South Africa of the Pillar Two legislation is under consideration by Parliament (expected promulgation date is the end of December 2024). The Bill proposes to introduce two measures to effect the Pillar Two proposals, namely an Income Inclusion Rule (IIR) and a Domestic Minimum Top-Up Tax for Qualifying Multinationals (QDMTT) for years of assessment commencing on or after 1 January 2024.
In October 2024, the Protocol amending the South Africa-Kuwait Double Taxation Agreement (Kuwait DTA) entered into force. The Protocol amends a number of the Kuwait DTA articles, notably the source country is now afforded the right to tax dividends (up to a maximum rate). Prior to the Protocol, the Kuwait DTA enabled the allocation of sole taxing rights on dividends under the South Africa-Netherlands and South Africa-Sweden DTAs to the residence country as a result of so-called most favoured nation (MFN) provisions in those DTAs. Due to the Protocol amendments, the MFN provisions are ’switched off’ and the source country will have taxing rights on the dividends as provided for in the respective DTAs.
To encourage the production of electric vehicles in South Africa, the 2024 Taxation Laws Amendment Bill (expected promulgation date is the end of December 2024) provides for a deduction (150% of cost) by a motor vehicle manufacturer for qualifying assets brought into use from 1 March 2026 and before 1 March 2036 on production capacity for electric and hydrogenâpowered vehicles in South Africa.
National Treasury has published three tax policy discussion documents for stakeholder input, i.e. Taxation of Alcoholic Beverages, Phase 2 of Carbon Tax, and the Tax Treatment of Collective Investment Schemes. These are expected to give rise to changes to be announced in the 2025 Budget.
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 was 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.
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 was 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 was 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 was 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 expected to decrease over time.
The tax regime for the upstream petroleum industry was reviewed, and the minimum flexible royalty rate was increased from 0.5% to 2%. The maximum rate will remain 5%.
South Africa ratified the Base Erosion and Profit Shifting (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.
