SOUTH AFRICA Law and Practice Contributed by: Magda Snyckers and Cameron Nathaniel, ENS
privileges and accelerated depreciation allowances on capital structures. • Grants are available to public-private partnerships under the Support Programme for Industrial Inno - vation as a subsidy towards the cost of developing new products or processes to reduce infrastructure backlogs in both urban and rural areas. • The Manufacturing Competitive Enhancement Pro - gramme of the Department of Trade and Industry provides incentives in the manufacturing sector along with grants of up to ZAR50 million. • A 50:30:20% accelerated depreciation allowance is available for investments made in energy-efficient equipment for the production of renewable energy and biofuels. Where such equipment is used in the generation of electricity from photovoltaic solar power plants with a generating capacity of not more than 1 MW, the allowance is enhanced to 100% of cost in the first year. • A headquarter company regime exists, aimed at intermediary foreign investment or finance compa - nies incorporated in South Africa. • Lastly, there is a shipping tax regime, which enti - tles a qualifying company to (i) exemptions from income tax, CGT, dividends tax, and withholding tax on interest; and (ii) apply its functional currency as the local currency for tax calculation purposes. 2.4 Loss Relief The basic rules on loss relief are set out below. • Subject to what is set out below, revenue losses may generally be carried forward indefinitely to be set off against income earned in the future, pro - vided that the taxpayer carries on a trade in each year of assessment. • The balance of the revenue loss that may be set off against income is limited to the greater of ZAR1 million or 80% of taxable income in that year of assessment. • The unutilised balance of the loss may be carried forward to the subsequent year of assessment. • Restrictions apply to losses created in carrying on a trade outside South Africa to be set off against South African income or to losses created in a partnership. • Capital losses are ring-fenced and may only be set off against capital gains and not against income
earned on revenue account. Unutilised capital losses may be carried forward to the subsequent year of assessment, irrespective of the trading status of the taxpayer. Restrictions apply to con - nected party losses. 2.5 Deduction of Interest Subject to what is set out below, interest expenditure incurred in the production of non-exempt income in the carrying on of a trade is generally deductible. Specific rules apply to determine the amount of the interest deduction and the timing thereof. There are no separate thin capitalisation rules appli - cable in South Africa. Thin capitalisation is to be dealt with as part of the general arm’s length-based transfer pricing requirements. Interest limitation rules apply to certain local and cross-border debts. Where applicable, these will result in deferring the deduction of excessive interest. 2.6 Consolidated Tax Grouping Group taxation is not allowed in South Africa. Not - withstanding this, corporate rollover relief is available in defined circumstances in respect of transactions between group companies provided certain require - ments are met. 2.7 Capital Gains A capital gain or loss arises upon the “disposal” of an asset and is calculated as the difference between the “base cost” and “proceeds” received by or accrued to a company on such disposal. CGT is levied at the applicable corporate tax rate on 80% of the aggregated net capital gains realised by a resident company during a tax year, resulting in an effective CGT rate of 21.6%. Non-residents are only subject to CGT on the disposal of assets which either (i) are effectively connected to a South African permanent establishment of the non- resident; or (ii) constitute immovable property situated in South Africa, or any right to or interest in immovable property. An interest in immovable property includes the disposal of equity shares in any company (resident
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