Global

South Africa

Tax


South Africa : AN INTRODUCTION

Contributed by ENSafrica

South Africa taxes residents on their worldwide income, whereas non-residents are taxed only on income sourced in South Africa or deemed to be from a source in South Africa. Non-residents are also subject to capital gains tax on the disposal of immovable property, or an interest or right in immovable property situated in South Africa, or assets which are attributable to a permanent establishment of such non-resident in South Africa.

A dividend withholding tax came into effect on 1 April 2012. This is a final tax payable on dividends declared to the ultimate shareholders of a South African company, if such shareholders are non-corporates or non-residents. Accordingly, dividends declared by a South African company to its non-resident shareholders will generally be subject to a 15% dividend withholding tax. The rate of 15% may be reduced by a double taxation agreement.

There are annual amendments to South Africa’s tax legislation which are mainly aimed at refining, tightening and clarifying the provisions of the relevant legislation. The following significant changes, as introduced by the Taxation Laws Amendment Act in 2013, are worth noting in the context of doing business:

• various amendments aimed at addressing concerns regarding excessive interest deductions. This includes the introduction of provisions relating to hybrid debt instruments, as well as hybrid interest, and limitations of excessive interest deductions in respect of a debt incurred to finance or refinance intra-group transactions (i.e. transactions which qualified for roll-over relief);
• the introduction of currency rules for domestic treasury management companies, as well as a corresponding exchange control regime);
• the limitation of the application of the foreign dividend participation exemption to equity shares (i.e. excluding preference shares);
• an amendment to the ring-fencing provisions relating to foreign-sourced trading losses to clarify that foreign trade losses should be fully ring-fenced to foreign income without being set off against South African income;
• the introduction of an exemption from income tax, dividend tax and capital gains tax for international shipping companies as defined;
• the introduction of uniform cross-border withholding tax regimes in respect of interest and services fees, to come into effect on 1 January 2015 at a rate of 15%;
• the introduction of limited transfer pricing relief for quasi equity-type loans; and
• the introduction of capital gains tax implications on the issue of shares by a resident company in exchange for shares in a foreign company.

It is also noted that an employment tax incentive (“ETI”) was recently introduced with effect from 1 January 2014. The ETI is an incentive aimed at encouraging employers to hire young and less experienced work-seekers, by essentially reducing the employer’s cost of hiring qualifying employees through a cost-sharing mechanism with the government. A qualifying employee would be someone between the ages of 18 to 29, subject to other qualifying criteria.

In terms of the Minister of Finance’s budget speech for 2014, the following changes are proposed:

• in the context of financing by way of the issue of preference shares, it is proposed that the anti-avoidance rules which deem dividends on “third party-backed shares” to be treated as ordinary revenue should not apply to the refinancing of qualifying transactions, such as where the preference shares are used to fund equity share acquisition in operating companies. Furthermore, it is proposed that these anti-avoidance rules should not apply where the security provided to the funder is limited to equity shares held by the acquiring company equity shareholders directly or indirectly in the underlying operating company;
• refinements to the calculations used to limit interest deductions for excessive debt in respect of reorganisation and acquisition transactions;
• refinements, in the context of dividend tax, to the refund mechanism for non-cash dividends;
• the current treatment of the secondary adjustment for transfer pricing in the form of a deemed loan is to be amended to treat the secondary adjustment as a deemed dividend or capital contribution;
• in the context of controlled foreign companies, to reduce the administrative burden, an option should be provided to deem the net income of the controlled foreign company to be nil if either the high tax or the foreign business establishment test is met;
• in the context of the VAT treatment when a going concern is sold, amendments will be proposed to resolve uncertainty regarding whether a person must be a vendor before the acquisition of the going concern; and
• the introduction of carbon tax is postponed to 2016.

The above lists only some of the proposed changes.

Furthermore, the Tax Administration Act No 28 of 2011 took effect on 1 October 2012, the provisions of which focus on the registration of taxpayers, return submissions, assessment procedures, objection and appeal procedures, information gathering, search and seizure provisions, provisions relating to the secrecy of the affairs of taxpayers, as well as the processes for payment and collection of outstanding tax. The first case in which provisions of the Tax Administration Act were considered, was decided in the high court earlier this year. Amendments were effected to the Act in the Tax Administration Laws Amendment Act No. 39 of 2013. These included revisions to the understatement penalty regime and the levying of additional tax, penalties and interest on matters that took place prior to the commencement of the Tax Administration Act.

As can be seen from the above, transformation of the tax landscape with a view to broaden the tax base, close loopholes, facilitate tax compliance and further improve the levels of compliance in South Africa, is continuing. A mention has been made of an overhaul of the taxation of trusts from an anti-avoidance perspective, however, there have been no formal proposals in this regard.

It is also clear that there is an intention to position South Africa as an attractive investment destination. Examples include the extension of the group reorganisation rules to give relief for the reorganisation of businesses operating across borders, as well as the introduction and refinement of the headquarter company regime to allow non-residents to use a South African company as a regional headquarter company for investments into, inter alia, Sub-Saharan Africa. In this regard, we have seen increased interest in using South Africa as a springboard into Africa, especially taking into account the good treaty network South Africa has.

Tax - South Africa

 - 

Band 1 | ENSafrica

第一等 |

Basic facts about the department 
- 21 partners
- 22 other qualified lawyers

What the team is known for Remains at the forefront of the market for expert tax advice, including the provision of authoritative risk reviews of various African countries. Also noted for its transfer pricing practice and its representation of clients in high-profile tax disputes.

Strengths (Quotes mainly from clients)
Efficiency: "Their advice was always very timely and on point." 

Value for money: "Very well priced for the quality of service." 

What's new? A team of five tax specialists from KPMG joined the firm in 2013.

Work highlights Advised the Industrial Development Corporation on the tax aspects of Anglo American's disposal of interest in the Scaw Group.

Advised Hosken Consolidated Investments on tax elements of its share buy-back transaction, coupled with the transfer of its stake in ETV. 

Notable practitioners  

Gerhard Badenhorst is well regarded for his advice on VAT matters. He is praised by one client as "a consummate professional who delivers the desired end result."

Peter Dachs is an international tax expert. He is sought out by South African and multinational companies for his advice on the tax implications of offshore investments as well as appropriate strategies for investing into South Africa.

Michael Katz is renowned for his wealth of experience advising on tax in the commercial and financial sectors. According to sources he is "regarded as the country's leading expert in tax and company law."

Beric Croome is described as "extremely professional and knowledgeable." He has a strong reputation for his advice in employment tax, income tax and taxpayers' rights.

Robert Gad is singled out for his broad practice, which encompasses both tax litigation and M&A.

Gary Vogelman is commended for his advice on tax matters concerning investment and finance. He acts for property funds as well as life insurance companies and banks.  

Significant clients Credit Suisse, Anglo American, Pepkor, Foschin, Atterbury Group.

Band 1 | Webber Wentzel

第一等 |

Basic facts about the department 
- 7 partners 
- 15 other qualified lawyers

What the team is known for First-class tax advisory firm combining qualified lawyers and chartered accountants to offer fully integrated solutions to its clients on both contentious and non-contentious matters. Best known for its work in M&A and international tax, and continues to be highly regarded in the field of private equity.

Strengths (Quotes mainly from clients)
Commercial awareness: "They know our firm very well and they know exactly what I want." 

Breadth of expertise: "It's a bigger firm so you have the benefit of a wider experience." 

Work highlights Acted for Capitalworks Private Equity Partners in the leveraged acquisition of Rhodes Food Group and its subsidiaries. As a result of the successful transaction, Capitalworks acquired a 76% share, with Rhodes Food management acquiring the remaining 24%. 

Advised members of Investec Asset Management on the tax aspects of their intention to buy a 15% stake in the Investec company.

Notable practitioners  

Michael Honiball heads the firm's international tax team and is also highly regarded for his expertise in transfer pricing.

Anne Bennett is considered to be one of the most experienced corporate tax lawyers in the country, particularly with regard to international tax planning. She is commended for her "good customer service" and is said to be "very technically and commercially astute." 

Department head Mark Linington focuses primarily on tax advice in the context of M&A, as well as corporate actions such as share buy-backs and debt structuring. Sources describe him as "an incredibly smart practitioner with a huge amount of experience and a strong accounting background." 

Significant clients Kagiso Tiso Holdings, Ethos Private Equity, Actis Private Equity, MTN Group, FirstRand Bank.

第二等 |

Basic facts about the department 
- 6 partners
- 9 other qualified lawyers

What the team is known for Highly regarded for its expertise in international tax, it has become a go-to firm for investment banks seeking advice on cross-border transactions, as well as housing more general expertise in transactional tax matters. Strong ties with law firms across the continent enable the firm to offer clients in-depth advice on multi-jurisdictional cases involving other African countries.

Strengths (Quotes mainly from clients)
Commercial awareness: "Receptive to feedback and up-to-date with what happens in the market. They can pride themselves on how well they know our business." 

Breadth of services: "One of the best-equipped and most insightful firms in Africa." 

Work highlights Advised Giuricich Bros Construction on the legal and tax aspects of the ZAR750 million sale of its property portfolio to the Investec Property Fund.

Acted as legal adviser to the Marsh group of companies in the sale of its shares in a local subsidiary to black economic empowerment investors Kapela and Parmtro.

Notable practitioners  

Wally Horak is head of tax in the firm's Cape Town office. He is particularly well respected for his advice on international matters, such as cross-border investments.

Alan Keep is recommended for his expertise in tax and structuring. One client noted that "his service to clients is very good." 

Lionel Shawe is known for his work in the financial services sector. He is commended by sources as "a smart and very able tax practitioner." 

Significant clients Standard Bank, SABMiller, Ethos Private Equity, Goldman Sachs, Barloworld.

第二等 |

Basic facts about the department 
- 4 partners
- 5 other qualified lawyers

What the team is known for Notable experience in dispute resolution, including disputes and negotiated settlements with the South African Revenue Service (SARS). Strong capacity to provide expert advice on local and international corporate tax planning and transactional work.

Work highlights Advised chemicals producer Tronox on tax aspects of its high-profile merger with the mining group Exxaro Resources.

Advised on tax matters arising from the unwinding of the Absa Batho Bonke black economic empowerment transaction.

Notable practitioners  

Practice head Emil Brincker is considered an expert on corporate reorganisations and finance transactions. One client praised him for being "a high-profile, clever lawyer who responds very quickly and is always ready to assist."

Ludwig Smith advises clients from the banking and mining sectors on the tax aspects of complex transactions and is noted for his "good tax knowledge."

Significant clients Adcorp, Delta Property Fund, Gold Fields, Super Group, PPC.

第三等 |

Basic facts about the department 
- 4 partners
- 2 other qualified lawyers

What the team is known for Broad expertise in corporate tax matters, including M&A, restructurings, capital gains tax and VAT. Also houses strong experience in litigation and alternative forms of dispute resolution.

Strengths (Quotes mainly from clients)
Clarity of advice: "They give integrated advice, communicating well between the tax and corporate sides." 

Work highlights Acted for Pembani Group in the refinancing of its debt arrangements, with a total value of ZAR11 billion.

Advised Sun Edison Energy on tax aspects of the structure and financing of a solar power plant. 

Notable practitioners  

Key tax partner Ernest Mazansky is recognised by a client as a "very good practitioner." His specialisms include corporate tax planning and the restructuring of corporate entities.

Doelie Lessing is known for handling tax matters concerning investments and capital gains tax. Sources note that she is "very good technically and always up to date with the newest legislation," while clients describe her as "incredibly responsive, personable and pleasant to deal with."

Patrick McGurk has considerable experience in all areas of corporate tax, and also specialises in VAT and capital gains tax. 

Significant clients The Bidvest Group, Netcare, Telesure Group, Mvelaphanda Holdings, Clover Industries.

Other Ranked Lawyers 其他上榜律师

Henry Vorster of Faber Goërtz Ellis Austin Inc is a commercial lawyer who specialises in tax, banking and finance law, and is heralded as "formidable in his area." 

Richard Glyn is a founding partner of Glyn Marais Inc, and recognised as a leading authority on tax in South Africa. He specialises in capital gains tax, income tax, project tax and VAT.

Since publication, Ernie Lai King has joined Hogan Lovells from ENSafrica. He is a leading tax practitioner who advises on range of matters, including M&A, dispute resolution, structured finance and international tax.

Andrew Wellsted is head of Norton Rose Fulbright's tax team in South Africa and focuses his practice predominantly in the international tax, banking and M&A fields. 

Freek Van Rooyen of Shepstone & Wylie is an experienced practitioner who is known for his advice on customs and excise issues, especially to clients in the energy and chemical industries.

Foreign Experts (Based Abroad)

Andrew Vergunst of McDermott Will & Emery UK LLP is based in the firm's London office. He is considered an expert in international tax and migration planning, a first port of call for businesses and families looking to relocate. He is known for his in-depth knowledge of tax planning and structuring in the UK, the USA and South Africa.

London-based Tim Newsome of RadcliffesLeBrasseur is well respected for his advice to South African residents on inward and outward investments, trusts and offshore tax structures. In addition to this, his specific expertise allows him to offer authoritative advice to clients setting up businesses in the UK, including advice on immigration.

Foreign Experts

Foreign Experts are individuals with expertise in a different jurisdiction to the one they are based in. These individuals are particularly highly regarded for international and cross-border work. Usually, they will be identified in the jurisdiction in which they are based and in their country of expertise.

Senior Statesman

A 'Senior Statesman' is a lawyer who no longer works hands-on with the same intensity but who, by virtue of close links with major clients, remains pivotal to the firm’s success.

Eminent Practitioners

'Eminent Practitioners' are highly influential lawyers in a particular practice area who, due to managerial or client relationship commitments, are less active in day-to-day work but remain key players in the team.

Other Noted Practitioners

Other Noted Practitioners are individuals who have not yet been ranked but are seen to be active and accomplished in this area of law.

Other Noted Firms

Other Noted Firms are firms that have not yet been ranked but are seen to be active and accomplished in this area of law.