South Africa has over 100 double taxation agreements (DTAs) worldwide, including with many with African countries, and is regarded as a natural holding company gateway into Africa. Some forms of income – typically dividends, royalties and interest – are generally exempt from tax or qualify for reduced rates under these tax treaties.
South Africa applies a residence-based tax system, which means that residents of the country are taxed on their worldwide income. However, relief is granted for foreign taxes paid on income earned in foreign jurisdictions, but only up to the amount of the equivalent South African tax payable on such income. Non-residents are taxed on the source basis, such that only income accruing from a South African source is taxable in South Africa.
A company, trust or similar entity is deemed to be a resident if it is incorporated, established, formed or has its place of effective management in South Africa.
A dual system for the taxation of companies exists in South Africa, one part being on taxable income and the other on distributed profits. The tax is levied as follows:
- Companies – 28%
- Personal service provider companies – 33%
- Foreign resident companies with a branch on SA-source income – 33%
- Dividend withholding tax, which is a tax on the beneficial owner at the standard rate of 20%, is subject to numerous exemptions and a reduction in rate under certain DTAs.
- R0 to R78,150 = 0% of taxable income
- R78,151 to R365,000 = 7% of taxable income above R70,700
- R365,001 to R550,000 = R20,601 + 21% of taxable income above R365,000
- R550,001 and above = R58,930 + 28% of the amount above R550,000
- Trusts other than special trusts – 45%
- Individuals and special trusts – 16.4%
- Companies – 22.4%
- Other trusts – 32.8%
If the branch of a foreign company establishes a place of business or owns immovable property in South Africa, it is regarded as an ‘external company’ and must be registered as such. Sovereign Trust (SA) can assist with this process.