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South Africa Budget Highlights 2013
However, some of the proposals are quite far reaching including proposed measures to relax cross-border financial regulations and tax requirements on businesses. Taxand South Africa highlight some of the key proposals for tax law changes.
International / cross border tax & Excon
- It is proposed that the cross border withholding regime on interest and royalties be extended to cross border service fees (subject to treaty relief). All three sets of withholding regimes namely interest, royalties (which are currently subject to withholding) and service fees will become effective from 1 March 2014. Listed South African multi-nationals will be allowed to treat a single local subsidiary as a non-resident company for exchange control purposes so that treasury operations can remain within South Africa rather than offshore. In addition these entities may use their foreign functional currency rather than rand as the starting point for tax calculation.
- In relation to controlled foreign company activities the imputation system will be clarified further. Issues mentioned include:
- Active offshore research and development activities
- International shipping activities
- International pipelines
- Commodity hedges associated with active operations
- Intra-controlled foreign company insurance premiums
- The exemption from tax on a foreign source of income if subject to foreign tax will be removed in relation to initial copyright authors
- Currency taxation rules are to be simplified in favour of a "more practical approach". A longer term shift is being considered towards an IFRS based approach
- There is no change proposed to the current rates of corporate tax or dividend tax
- Certain tax incentives are proposed to be established in certain special economic zones including:
- a 15% corporate tax rate
- an employment incentive for workers earning less than R60,000 per annum
- an accelerated depreciation allowance for buildings similar to the UDZ program.
South Africa's 2013 Budget sets out a new strategic framework for growth and development. A review of the tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability will take place this year. There are substantial strengths on which to build including an effective tax system. A number of measures are proposed to relax cross-border financial regulations and tax requirements on companies, making it easier for banks and other financial institutions to invest and operate in other countries. Similar measures will apply to foreign companies wanting to invest in African countries using South Africa as their regional headquarters. As the Government look to grow the economy, invest in resources and grow the tax base, multinationals either investing or looking to invest in South Africa stand to benefit.