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Domestic treasury management companies
Last year a treasury management company regime was introduced for exchange control purposes to encourage the establishment of group treasury management functions in South Africa. Taxand South Africa considers income tax in light of this.
Certain tax concessions were introduced to promote the use of the domestic treasury management company regime. Essentially a domestic treasury management company is permitted to use its functional currency as opposed to Rand as a starting point for currency translations for tax purposes providing relief in respect of unrealised foreign currency gains or loses.
However interest income derived by the domestic treasury management company will continue to be subject to South African income tax. The relief is therefore limited to exchange gains and losses. It should thus be ensured that the company’s treasury operations are primarily concluded in its functional currency.
The broad idea is to allow South African groups to avoid having to set up an offshore treasury company and, instead, to allow such groups to utilise a South African entity to fund their offshore operations. In the case of an offshore treasury company it is noted that such a company would typically constitute a 'controlled foreign company' and an amount equal to its taxable income would be allocated to and taxed in the hands of its South African shareholders unless an exemption applies such as the exemption applicable where interest is received by one CFC from another CFC where such CFCs form part of the same 'group of companies'.
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