SOUTH AFRICA Law and Practice Contributed by: Magda Snyckers and Cameron Nathaniel, ENS
3.4 Taxation of Individuals on Shares in Closely Held Corporations Dividends tax is levied at a rate of 20% in respect of dividends received or accrued by individuals from South African companies. See 6.7 The Sale of Shares in Non-Local Affiliates for the treatment of a gain on the sale of shares. 3.5 Taxation of Individuals on Shares in Public Corporations See 3.4 Taxation of Individuals on Shares in Closely Held Corporations . 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes Withholding Tax Rates For non-residents, the following rates apply: • branch profits – not applicable; • cash dividends – 20%; • interest – 15%; and • royalties – 15%. For residents: • cash dividends – 20% (individuals); and • resident companies – exempt from withholding tax on dividends. Dividends that constitute the distribution of an asset in specie are subject to dividends tax at the rate of 20% in the hands of the company declaring the dividend. Certain exemptions may apply. 4.2 Key Treaty Jurisdictions for Inbound Investment South Africa has tax treaties in force with: Algeria, Australia, Austria, Belarus, Belgium, Botswana, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Croatia, Cyprus, Czechia, Democratic Republic of the Congo, Denmark, Egypt, Eswatini, Ethiopia, Finland, France, Germany, Ghana, Greece, Grenada, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kenya, Kuwait, Lesotho, Luxembourg, Mala - wi, Malaysia, Malta, Mauritius, Mexico, Mozambique,
Namibia, the Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Republic of Korea, Romania, Russia, Rwanda, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan, Tan - zania, Thailand, Tunisia, Türkiye, Uganda, Ukraine, the United Arab Emirates, the United Kingdom, the United States, Zambia, and Zimbabwe. South Africa signed the OECD Multilateral Conven - tion to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which entered into force in South Africa on 1 January 2023. At present, South Africa has listed 76 DTAs under its MLI Position, of which 50 of the 76 jurisdictions have ratified the MLI. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices Local authorities will challenge the tax residence of the entity in a treaty country if there is not sufficient substance in the entity. 4.4 Transfer Pricing Issues for Inbound Investors Cross-border transactions between “connected per - sons” or “associated enterprises” must be entered into on an arm’s length basis. The connected person test is based on shareholding and the minimum requirement is a shareholding of at least 20% of the equity shares or voting rights. Com - panies managed or controlled by (i) any person who is a connected person of the company or (ii) any con - nected person of the person in (i) are also connected. An “associated enterprise” means an associated enterprise as contemplated in Article 9 of the Mod - el Tax Convention on Income and on Capital of the OECD. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Limited risk distribution arrangements are occasion - ally challenged but can be defended through sufficient functional analysis/characterisation of the local entity.
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