SOUTH AFRICA Law and Practice Contributed by: Magda Snyckers and Cameron Nathaniel, ENS
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses typically adopt a corporate form, a trading trust or a partnership. 1.2 Use and Taxation of Transparent Business Structures Partnerships are tax transparent entities. The individ - ual partners contribute to a business or undertaking carried on in common, with the main goal of generat - ing revenue. Each partner is taxed on their respective share of the partnership income and any income from other sources. Trusts may also function as transparent entities. In terms of Section 25B(1) of the Income Tax Act, 58 of 1962 (the “Act”), any amount (other than one of a capital nature not included in gross income, or one received on termination and constituting a retirement lump sum payment) received by or accrued to or in favour of the trustee of a trust, whether testamentary or inter vivos, which has been derived for the imme - diate or future benefit of an “ascertained beneficiary” who enjoys a vested right to the income and who is a resident, is deemed to be an amount which has accrued to the beneficiary and not to the trust. Collective investment schemes (CIS) may be transpar - ent to the extent that the income of the CIS (other than amounts of a capital nature) has been distributed to the holders of participatory interests within 12 months of accrual or within 12 months of receipt in the case of interest, as such income will be deemed to accrue to the holder of a participatory interest. 1.3 Tests for Determining Tax Residence South Africa taxes residents on their worldwide income and non-residents on income from a source in South Africa. An entity (other than a natural person) is resident in South Africa if it is incorporated, established or formed in South Africa, or if its place of effective management is in South Africa, provided that it is not deemed to be exclusively resident in another country in terms of a double tax agreement (DTA).
1.4 Applicable Corporate and Individual Tax Rates Resident companies and permanent establishments of non-resident companies are subject to corporate income tax at the rate of 27% and to capital gains tax (CGT) at an effective CGT rate of 21.6%. Small business corporations (ie, corporates with annual gross income which does not exceed ZAR20 million and which meets other qualifying requirements) are taxed on a sliding scale from 0% to 27% depend - ing on the level of taxable income. A formula is applied to taxable income from gold min - ing operations which reduces or increases the normal tax rate in accordance with the relationship between taxable income derived from mining and gross mining revenue. Long-term insurance companies are required to be split into separate funds, which are taxed separately, either at 0%, 27% or 30%. Trusts are currently taxed at an income tax rate of 45% and an effective CGT rate of 36%. “Taxable income” is the aggregate of the amount remaining after deducting from the “income” (which excludes exempt income) all amounts allowed to be deducted or set off in terms of the Act. 2.2 Technology Investments Section 11D of the Act allows a deduction equal to 150% of expenditure incurred directly for research and development (R&D), provided certain require - ments are met. 2.3 Special Incentives Other special incentives exist, as set out below. • Various incentives are available to operations in special economic zones, including a reduced corporate income tax rate of 15%, being treated as a customs-controlled area with duty-free and VAT 2. Corporate Tax Regime 2.1 Taxable Profits
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