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South Africa Revises Exit Charges
In the case of a resident company that ceases to be a resident or becomes a headquarter company, it will be deemed to have distributed its assets as a dividend in accordance with each shareholder's effective interest. The company will therefore potentially be liable for dividends tax, depending on the availability of any dividends tax exemptions. The amount of the deemed dividend is deemed to be the market value of the shares in the company (i.e. the company's gross value net of liabilities) less the sum of contributed tax capital.
Section 9H will not apply in respect of a company that ceases to be a resident as a result of an "amalgamation transaction" or a "liquidation distribution".
Furthermore, where a company ceases to be a controlled foreign company as a result of the disposal by a person of shares in a foreign company, and such disposal was disregarded for CGT purposes, section 9H provides that the exit charge will not apply to a company which ceases to be a CFC.
Section 9H will apply to a person or company that ceases to be a resident, a company which becomes a headquarter company and a controlled foreign company that ceases to be a controlled foreign company, subject to limited exclusions. If a multinational, which has opertations in South Africa, falls under one of these categories, they should investigate how the implications Section 9H will have on their specific case.