Royalties from Patents, Know-how, etc. 15 (f)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited (g)
(a) The rate was reduced from 28% to 27% for tax years ending on or after 31 March 2023 (which in most cases will mean tax years starting on or after 1 April 2022). The mining income of gold mining companies is taxed under a special formula, and the non-mining income of such companies is taxed at a rate of 27% (previously 28%). Special rules apply to life insurance companies, petroleum and gas producers and small business corporations. See Section B.
(b) Under legislation that is due to be enacted, from years of assessment commencing on or after 1 January 2024, a global minimum tax of 15% will apply to large multinationals. See Section E.
(c) This is the effective rate for companies. See Section B.
(d) Dividend withholding tax applies to dividends paid by South African-resident companies. Certain dividends are exempt from the withholding tax, such as dividends received by South African-resident companies and public benefit organizations. A decreased rate may apply under a double tax treaty. See Section F.
(e) Interest withholding tax applies only to interest paid to nonresidents. Certain interest income is exempt from this withholding tax, including interest with respect to government debt instruments, listed debt instruments and debt instruments owed by banks. A reduced rate may apply under a double tax treaty. See Section F.
(f) Royalties withholding tax applies only to royalties paid to nonresidents, subject to certain exemptions. A reduced rate may apply under a double tax treaty. See Section F.
(g) See Section C.
B. Taxes on corporate income and gains
Company tax. A residence-based tax system applies in South Africa. Under domestic legislation, companies are resident in South Africa if they are incorporated in South Africa or have their place of effective management in South Africa.
South African-resident companies are taxed on their worldwide income (including capital gains).
Under complex look-through rules, the income of nonresident subsidiaries in foreign countries is taxed in the hands of the immediately cross-border South African-resident parent company on an imputation basis (see the discussion on controlled foreign companies [CFCs] in Section E). The income of nonresident subsidiaries with “foreign business establishments” in foreign countries is generally exempt from the look-through rules, subject to complex anti-avoidance exceptions. Dividends paid by foreign companies that are not CFCs are taxable unless the shareholding of the South African-resident recipient is 10% or more (see the discussion of foreign dividends in Dividends).
Nonresident companies are taxed on their South African-source income only.
Tax rates. For tax years ending on or after 31 March 2023, the normal corporate income tax rate in South Africa is 27% (previously 28%). South African branches of nonresident companies are also taxed at 27% on South African-source income.
Global minimum tax. South Africa is due to enact legislation introducing a global minimum tax with effect from years of assessment commencing on or after 1 January 2024. For details, see Global minimum tax in Section E.
Dividend withholding tax. A withholding tax is imposed at a rate of 20% on cash and in specie dividends paid.
A dividend is any amount transferred or applied by a company for the benefit of its shareholders, whether by way of a distribution or as consideration for a share buyback, excluding the following:
• Amounts that result in a reduction of the contributed tax capital of the company
• Shares in the company
• An acquisition by a listed company of its own shares through a general repurchase of shares in accordance with the Johannesburg Stock Exchange (JSE) listing requirements
The tax applies to dividends paid by South African-resident companies (other than headquarter companies) or with respect to cash dividends paid by foreign companies on shares listed on the JSE. Although the tax is imposed on the recipient of a dividend (in the case of a cash dividend), the declaring company must withhold the tax from the dividend paid and pay the tax to the South African Revenue Service (SARS) on behalf of the recipient. In the case of a listed company, a regulated intermediary withholds the tax.
Dividends are not subject to the withholding tax if any of the following circumstances, among others, exists:
• The beneficial owner is a resident company.
• The beneficial owner is a local, provincial or national government.
• The beneficial owner is a specified tax-exempt entity.
• The beneficial owner is an environmental rehabilitation trust.
• The beneficial owner is an institution, board, body, fund (such as a pension fund) or person that meets specific requirements.
• The dividend is paid by a micro business, up to ZAR200,000.
• The dividend is paid by a foreign company listed on the JSE to a nonresident beneficial owner.
• The dividend is taxable in nature.
A paying company is not required to withhold dividends tax if the beneficial owner has supplied it with a written declaration stating the following:
• It is exempt from dividends tax.
• It will inform the company when it is no longer the beneficial owner of the shares.
If the beneficial owner is a nonresident that would like to rely on a reduced dividends tax rate under a double tax treaty between South Africa and its country of residence, it must provide the company with a written declaration that the reduced rate applies and specified undertakings.
If the dividend is a distribution in specie, the tax is imposed on the declaring company.
Corporate emigration (cessation of tax residence), which could occur when the company’s place of effective management is moved outside South Africa, triggers four separate “exit” charges. First, there is a deemed disposal at market value of the assets of the company, resulting in a CGT and/or normal corporate income tax charge. Secondly, there is a deemed dividend in specie, potentially resulting in dividend tax liability. The amount of the dividend in specie is deemed to be equal to the sum of the market values of all the shares in that company on that date less the sum of the contributed tax capital of all the classes of shares in the company as of that date. Alternatively, if the deemed dividend qualifies for certain exemptions, the shareholder(s) of the migrating company might be deemed to have disposed of the shares (held in the migrating company), potentially resulting in a CGT liability for the shareholder(s). The third and fourth exit charges arise from the reversal of participation exemptions claimed by the migrating company in the last three years before migration, resulting in additional CGT (on previously exempt foreign share-disposals) and/or normal corporate income tax (on previously exempt foreign dividend income).
Subject to certain exceptions, disposals of equity shares in foreign companies to third-party nonresidents are exempt from CGT if the disposing party has held at least 10% of the equity in the foreign company for at least 18 months.
Administration. The Tax Administration Act governs the administration of most taxes in South Africa.
The tax year for a company is its financial year. A company must file its annual tax return in which it calculates its taxable income and capital gains, together with a copy of its audited financial statements, within 12 months after the end of its financial year The SARS issues an official assessment based on the annual return.
The company must pay the balance of tax due after deduction of provisional payments within a specified period after receipt of the assessment.
Companies must pay provisional tax in two installments during their tax year. The first must be paid by the end of the sixth month of the tax year and the second by the end of the tax year. The second payment must be accurate to within 80% of the actual tax for the year. A third (“topping up”) payment may be made within six months after the end of the tax year (for companies with a tax year-end of the last day of February, it is the last business day of September). If this payment is not made and if there is an underpayment of tax, interest is charged from the due date of the payment. A 20% penalty is charged if the total provisional tax paid for the year does not fall within certain prescribed parameters.
Tax penalties fall into two broad categories, which are for specified noncompliance (penalty can range between ZAR250 and ZAR16,000 per month) and understatement (penalty can range between 5% and 200% of the shortfall).
• 10% if constructed during the period of 1 July 1996 through 31 March 2000
• 5% if constructed after 1 April 2000
Hotels. Construction of and improvements to hotels qualify for a 5% straight-line allowance. However, capital expenditure on the internal renovation of hotels qualifies for straight-line depreciation at an annual rate of 20%.
Urban renewal. The cost of erecting new buildings or renovating (including extension) old buildings in certain depressed urban areas qualifies for allowances if the building is used by the taxpayer for the taxpayer’s own trade or is leased for commercial or residential purposes. If the building is new or significant extensions are made to an existing building, the allowance is 25% in the year of first occupation, 13% per year for the five succeeding years and 10% in the following year. If a building is renovated and if the existing structural or exterior framework is preserved, the allowance is 25% per year for four years. The allowances have been adjusted over the years. As a result, different rules may be in effect for improvements undertaken in previous tax years.
Enhanced deduction for renewable energy plant and machinery. Costs incurred with respect to the acquisition and construction of plant and machinery used in the generation of renewable energy qualify for an upfront allowance (based on certain criteria) of 125% of the cost incurred. However, the enhanced allowance is only available for assets brought into use on or after 1 March 2023 and before 1 March 2025.
Renewable energy plant and machinery. Costs incurred with respect to the acquisition and construction of plant and machinery used in the generation of renewable energy (that do not qualify for the enhanced deduction noted in Enhanced deduction for renewable energy plant and machinery) qualify for allowances (based on certain criteria) at the following rates:
• 50% in the first year of use
• 30% in the second year of use
• 20% in the third year of use
Other commercial buildings. An allowance of 5% of the cost is generally available on commercial buildings not qualifying for any of the above allowances.
Wear-and-tear allowance for movables. An annual “wear-and-tear” tax depreciation allowance on movable items may be calculated using the declining-balance method or the straight-line method, but the straight-line method is generally preferred by the revenue authority. The allowance may be claimed based on the value (generally the cost) of movable non-manufacturing machinery and equipment used by the taxpayer for the purposes of its trade. Rates for the wear-and-tear allowance are not prescribed by statute, but certain periods of depreciation are generally accepted by the tax authorities. The following are some of the acceptable periods of straight-line depreciation.
Asset Years
are economically equivalent to interest (including certain foreignexchange losses) to 30% of adjusted taxable income (that is, tax earnings before interest, taxes, depreciation and amortization [EBITDA]).
Transfer pricing. The transfer-pricing provisions, relying on the arm’s-length principle, apply with respect to any cross-border transaction, operation, scheme, agreement or understanding that are concluded between, or for the benefit of connected persons. Primary and secondary adjustments apply where parties are not transacting at arm’s length. The following are key aspects of the legislation:
• Affected transaction means any transaction, operation, scheme, agreement or understanding entered into or effected between or for the benefit of connected parties, as defined, and the terms or conditions are different from arm’s-length terms or conditions.
• The arm’s-length principle applies to financial transactions.
• If there is a transfer-pricing adjustment, a secondary adjustment is also triggered in the form of a deemed dividend in specie to a company, attracting dividends tax at a rate of 20%.
• In general, the SARS accepts the application of the OECD Transfer Pricing Guidelines. Regarding documentation, the adoption of rules largely in line with Chapter V (Documentation) have been formalized into domestic law (including Country-byCountry Report, Master File and Local File).
Anti-avoidance legislation. In addition to transfer-pricing rules (see Transfer pricing), South African law contains general antiavoidance provisions that target “impermissible tax avoidance arrangements.” Broadly, an impermissible tax avoidance arrangement is an arrangement that seeks to achieve a tax benefit as its sole or main purpose and was entered into in a manner that would not normally be employed for bona fide business purposes, lacks commercial substance or misuses or abuses other provisions of the tax law. The SARS has wide powers in determining the tax consequences of an impermissible tax avoidance arrangement.
Controlled foreign companies. The controlled foreign company (CFC) legislation regulates the taxation of certain income of CFCs. Key aspects of the legislation are described below.
An amount determined with reference to the CFC’s net income, including capital gains, may be imputed proportionately to any South African resident (other than a headquarter company) that holds an interest of 10% or more in that CFC. The net income is calculated using South African tax principles, but generally ignoring passive income flows between CFCs in a 70%-held group.
A foreign company is considered a CFC if any of the following circumstances exists:
• South African residents, other than headquarter companies (see Headquarter companies), directly or indirectly hold more than 50% of the participation rights in that foreign company.
• More than 50% of the voting rights in that foreign company is directly or indirectly exercisable by one or more residents.
• The financial results of that foreign company are reflected in the consolidated financial statements (prepared in terms of International Financial Reporting Standards 10) of any company that is a resident other than a headquarter company.
There are additional rules dealing with indirect holdings through, for example, listed companies.
A CFC’s income is exempt from imputation to the extent that it is attributable to a “foreign business establishment” (FBE) of that CFC. In broad terms, an FBE is a fixed place of business that is suitably equipped with on-site operational management, employees, equipment and other facilities for conducting the primary operations of the business and that is used for a bona fide business purpose and not for tax avoidance (the place of business may be located elsewhere than in the CFC’s home country). Several anti-avoidance exceptions exist with respect to the measure described in this paragraph. Also, if the tax payable to a foreign government equals at least 67.5% of the tax liability that would have arisen in South Africa, no income needs to be imputed into the resident’s taxable income due to reliance on a high-tax exemption. There are also other exemptions for specific types of income in certain circumstances.
See Section B for information regarding foreign attributable tax credits and carryforward rules.
Headquarter companies. The headquarter company regime was introduced to encourage foreign companies to use South Africa as their base for investing in Africa. Broadly, headquarter companies are exempt from withholding taxes on dividends, interest and royalties.
A headquarter company is a South African-resident company that has elected to be treated as a headquarter company and that satisfies all of the following conditions:
• Each shareholder (alone or together with any company forming part of the same group of companies) holds 10% or more of the equity shares and voting rights in the headquarter company.
• At least 80% of the cost of the headquarter company’s assets (excluding cash) is attributable to investments in equity shares, loans or advances, or intellectual property (IP) in nonresident companies (investee companies) in which the headquarter company holds an equity interest of at least 10%.
• If the gross income of the company exceeds ZAR5 million, at least 50% of that gross income must consist of rentals, dividends, interest, royalties and service fees received from the foreign investee companies contemplated above, or proceeds from the sale of equity shares or IP in such foreign companies. There are certain exclusions regarding foreign-exchange gains or losses.
A headquarter company also has certain reporting requirements.
The CFC imputation rules do not apply to headquarter companies, but these companies are essentially transparent for the purposes of the CFC rules. If more than 50% of the headquarter company’s shares is held by South African residents, the underlying foreign subsidiaries of the headquarter company might still be CFCs in the hands of those South African residents. As a result of this concession, the net income of the headquarter company’s CFCs is not taxed in its hands, but in the hands of the ultimate shareholders if they are South African residents.
Dividends (a) Interest (b) Royalties (c) %
Switzerland 5/15 (q) 5 0
Taiwan 5/15 (t) 10 10 (e)
Tanzania 10/20 (v) 0/10 (gg) 10
Thailand 10/15 (s) 0/10/15 (nn) 15
Tunisia 10 0/5/12 (oo) 10
Türkiye 10/15 (s) 0/10 (gg) 10
Uganda 10/15 (s) 0/10 (gg) 10 (e)
Ukraine 5/15 (q) 0/10 (gg) 10
United Arab
Emirates 5/10 (k) 10 10 (e)
United Kingdom 5/10/15 (p) 0 0 (e)
United States 5/15 (t) 0 0 (e)
Zambia
Zimbabwe 5/10 (m) 5 10 (e)
Non-treaty jurisdictions 20 15 15
(a) Dividends are subject to withholding tax in South Africa at a rate of 20%, unless reduced by tax treaties as shown in the table above.
(b) Interest withholding tax at a rate of 15% applies to South African-source interest paid to nonresidents. Certain exemptions and exclusions apply. Domestic rates can be reduced by tax treaties as shown in the table above.
(c) Royalties withholding tax at a rate of 15% applies to South African-source royalties paid to nonresidents. Certain exemptions and exclusions apply. Domestic rates can be reduced by tax treaties as shown in the table above.
(d) In general, royalties are exempt if they are subject to tax in Israel. For film royalties, however, the rate is 15%.
(e) The rate applies only if the recipient is the beneficial owner of the royalties.
(f) The 6% rate applies to royalties paid for copyrights of literary, dramatic, musical or other artistic works (excluding royalties with respect to motion picture films, works on film or videotape or other means for use in connection with television broadcasting), as well as for the use of, or the right of use, computer software, patents or information concerning industrial, commercial or scientific experience (excluding information provided in connection with a rental or franchise agreement). The 10% rate applies to other royalties.
(g) The 10% rate applies to royalties paid for copyrights of literary, artistic or scientific works, including cinematographic films, tapes, discs, patents, knowhow, trademarks, designs, models, plans or secret formulas. The 10% rate applies to the “adjusted amount” of royalties paid (that is, 70% of the gross amount of royalties) for industrial, commercial or scientific equipment. This effectively provides a 7% rate on the gross royalties paid.
(h) The 5% rate applies to royalties paid for copyrights of literary, artistic and scientific works. The 7% rate applies to royalties paid for patents, trademarks, designs, models, plans or secret formulas, as well as for industrial, commercial or scientific equipment.
(i) The 5% rate applies to royalties paid for copyrights of cultural, dramatic, musical or other artistic works or for industrial, commercial and scientific equipment. The 10% rate applies to other royalties.
(j) The 15% rate applies to royalties paid for the use of trademarks. The 10% rate applies to other royalties.
(k) The 5% rate applies if the beneficial owner is a company that owns at least 10% of the shares. The 10% rate applies to other dividends.
(l) The 5% rate applies if the beneficial owner is a company that owns at least 25% of the shares. The 15% rate applies to other dividends.
(m) The 5% rate applies if the beneficial owner is a company that owns at least 25% of the shares. The 10% rate applies to other dividends.
(n) The 7.5% rate applies if the beneficial owner is a company that owns at least 25% of the shares or voting power. The 15% rate applies to other dividends.
(o) The 8% rate applies if the beneficial owner is a company that owns at least 25% of the shares. The 15% rate applies to other dividends.
(p) The 5% rate applies if the beneficial owner is a company that owns at least 10% of the shares. The 15% rate applies to qualifying dividends paid by a property investment company that is a resident of a contracting state. The 10% rate applies to other dividends.
(q) The 5% rate applies if the beneficial owner is a company that owns at least 20% of the shares. The 15% rate applies to other dividends.
(r) The 7.5% rate applies if the beneficial owner is a company that owns at least 10% of the shares or voting power. The 10% rate applies to other dividends.
(s) The 10% rate applies if the beneficial owner is a company that owns at least 25% of the shares. The 15% rate applies to other dividends.
(t) The 5% rate applies if the beneficial owner is a company that owns at least 10% of the shares. The higher rate applies to other dividends.
(u) The 10% rate applies if the beneficial owner is a company that owns at least 25% of the shares. The 20% rate applies to other dividends.
(v) The 10% rate applies if the beneficial owner is a company that owns at least 15% of the shares. The 20% rate applies to other dividends.
(w) The 10% rate applies if the beneficial owner is a company that owns at least 10% of the shares. The 15% rate applies to other dividends.
(x) The 5% rate applies if the beneficial owner is a company that owns at least 25% of the voting shares of the company paying the dividends during the six-month period immediately before the end of the accounting period for which the distribution of profits takes place. The 15% rate applies to other dividends.
(y) The 10% rate applies if the beneficial owner is a company that owns at least 25% of the shares for an uninterrupted period of two years before the payment of the dividend. The 15% rate applies to other dividends.
(z) The 10% rate applies if the beneficial owner is a company that owns at least 30% of the shares in the company paying the dividends, and holds a minimum direct investment of USD100,000 in that company. The 15% rate applies to other dividends.
(aa) The 0% rate applies to government institutions and unrelated financial institutions. The 10% rate applies in all other cases.
(bb) The 5% rate applies to banks or other financial institutions. The 10% rate applies in all other cases.
(cc) The 0% rate applies to commercial debt claims, public financial institutions or public entities under a scheme for the promotion of exports, loans and deposits with banks and interest paid to the other contracting state. The 10% rate applies in all other cases.
(dd) The 10% rate applies to government institutions. The 15% rate applies in all other cases.
(ee) The 0% rate applies to government institutions. The 5% rate applies in all other cases.
(ff) The 10% rate applies to government institutions.
(gg) The 0% rate applies to government institutions. The 10% rate applies in all other cases.
(hh) The 0% rate applies to government institutions. The 12% rate applies in all other cases.
(ii) The 0% rate applies to government institutions. The 8% rate applies in all other cases.
(jj) The 5% rate applies to banks. The 10% rate applies in all other cases.
(kk) The 0% rate applies to government institutions and interest paid on loans or credits for periods of no less than three years that are granted, guaranteed or insured by a financial or credit institution that is wholly governmentowned.
(ll) The 0% rate applies to government institutions. The 7.5% rate applies in all other cases.
(mm) The 5% rate applies to government institutions and interest paid on longterm loans (seven years or more) granted by banks or other credit institutions that are resident in a contracting state.
(nn) The 0% rate applies to government institutions. The 10% rate applies to financial institutions (including insurance companies). The 15% rate applies in all other cases.
(oo) The 0% rate applies to government institutions. The 5% rate applies to banks. The 12% rate applies in all other cases.
(pp) The 5% rate applies to royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment, or transport vehicles. The 10% rate applies in all other cases.
(qq) The 5% rate applies to royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment. The 10% rate applies in all other cases.
(rr) The 5% rate applies if the dividend is paid out of profits that have borne the normal rate of company tax and if the beneficial owner is a company that owns at least 10% of the shares. The higher rate applies to other dividends.
1720 s ou T h a frica
(ss) The 5% rate applies to interest on loans from banks and insurance companies, bonds and securities traded on a recognized securities market and credit sales of machinery or equipment if the seller is the beneficial owner of the items. The 15% rate applies in all other cases.
(tt) Based on the most-favored-nation clause, the rate is reduced to 0%, subject to the protocol between South Africa and Kuwait being ratified by both parties.
South Africa is in the process of negotiating, finalizing, signing or ratifying new treaties, or protocols to existing treaties, with several jurisdictions, including, among others, Eswatini, Gabon, Germany, Kuwait, Luxembourg, Malawi, Mozambique, Netherlands, Senegal, Sudan, Switzerland and Zambia.