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South African Tax Bills Approved By Parliament

Monday, December 19, 2016

South Africa's Ministry of Finance has published the 2016 Taxation Laws Amendment Bill (TLAB), which has received parliamentary approval and gives effect to the tax changes announced in the Budget in February this year, together with legislation confirming the final details of. the Special Voluntary Disclosure Program (SVDP).

With changes to the tax rates and thresholds announced in the 2016 Budget already included in previous legislation, the TLAB deals with the Budget's more substantive changes to the country's tax laws.

The TLAB includes the following Budget proposals:

  • Introduction of measures, with effect from March 1, 2017, to prevent the avoidance of estate duty and donations tax through the transfer of assets to a trust using interest-free or low interest loans;
  • Refinements to the taxation of retirement savings, following harmonization of the tax treatment of contributions to retirement funds from March 1, 2016;
  • Addressing the circumvention of rules dealing with employee share incentive schemes, when restricted shares held by employees are liquidated;
  • Modifications to the anti-avoidance rules dealing with cross-border hybrid debt instruments and hybrid interest, to stop opportunities for tax arbitrage by non-resident issuers;
  • Extension of the learnership tax incentive, until March 31, 2022;
  • Expansion of the accelerated capital allowance to include supporting infrastructure used in producing renewable energy;
  • Allowing further municipalities to apply for the urban development zone tax incentive;
  • Extension until February 28, 2019 of the employment tax incentive, which reduces the costs associated with hiring younger workers;
  • Repeal of the 15 percent withholding tax payable on services provided by South African residents to non-residents from January 1, 2017, and its replacement under reportable arrangements provisions; and
  • Revision of a previous value added tax amendment so as to allow the deduction of notional input tax credit on second-hand goods containing gold.

Final details of the SVDP have also been included in the approved 2016 tax legislation. The SVDP offers non-compliant taxpayers an amnesty on offshore assets and income until August 31, 2017 (previously March 31, 2017).

The program is intended to encourage taxpayers to come forward on a voluntary basis to regularize their tax affairs with the South African Revenue Service prior to the coming into operation of the OECD's Common Reporting Standard in September next year. Taxpayers, both individuals and companies, can avoid the imposition of understatement and administrative penalties, and criminal prosecution.

Trusts will not qualify to apply for the SVDP, but settlors, donors, deceased estates, and beneficiaries of foreign discretionary trusts may participate if they elect to have the trust's offshore assets and income deemed to be held by them for tax purposes.

Under the finalized SVDP, 40 per cent of the highest value of the aggregate of all assets situated outside South Africa between March 1, 2010 and February 28, 2015, that were derived from undeclared income, will be included in taxable income and subject to tax in South Africa.

The undeclared income that originally gave rise to those undeclared assets, will be exempted from income tax, donations tax, and estate duty in the past. However, future income will be fully taxed and declared assets will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or pass away while holding them.