International tax and exchange control

Taxation of short-term insurers

The Insurance Act, 2017 will permit foreign reinsurers to operate reinsurance businesses in South Africa through branches rather than subsidiaries. The current tax legislation only applies to short-term insurers resident in South Africa.  The provisions of the tax legislation will therefore be extended to apply to non-residents operating short-term insurance business through branches in South Africa.

Extension of the application of controlled foreign company rules

Draft legislation released in 2017 provided that local distributions by discretionary foreign trusts or foreign foundations to individuals and local trusts will be taxable on revenue account in the hands of South African resident beneficiaries. These proposals were not however implemented due to their perceived complexity and broad scope.  These proposals will be reconsidered during 2018.

Controlled Foreign Companies (CFC) – High tax exemption

Where a foreign company that is a CFC for South African tax purposes operates in a jurisdiction where tax is payable in that foreign jurisdiction at a rate greater than 75% of the tax that would be payable in South Africa, the CFC rules would not be applicable and the net income of the foreign company is deemed to be nil. Due to a global shift by countries to reduce the corporate tax rate, it is proposed that the 75% threshold must be revised.

Exchange control

Significant and strategic transactions

To support cross-border investment, and increase transparency, the National Treasury will publish a proposed policy framework for the review and approval of complex cross-border transactions.

Prudential limits

Due to recent events that suggest a need to increase investment in diverse asset classes by institutional investors, the offshore investment limit for funds under management by institutional investors will increase by 5%, including the African investment allowance.

Loop structures

The exemption regarding loop structures (which occur when South Africans invest in South Africa assets via an entity in a foreign jurisdiction) will be increased from a maximum shareholding of 20% to 40% for bona fide foreign direct investments by corporates. The current minimum shareholding requirement of 10% for foreign direct investments by corporates is abolished.  This applies to corporates, and private equity funds, provided that the corporate or private equity fund is a tax resident in South Africa.

Holding company rules

The limit for transfers to group holding companies used as a treasury entity in foreign operations will be increased from R2 billion to R3 billion for listed companies, and from R1 billion to R2 billion for unlisted companies, subject to the applicable reporting requirements.

Inward listings

Treasury plans to release a comprehensive inward listings review paper this year to address various matters, including the standards for reporting and provided information , company track records, arm’s-length arrangements, valuation of the acquiring company, management arrangements, funding arrangements, deployment of listing proceeds offshore, due diligence, audit history, stakeholder protection, better treatment of holders of securities, and confidence among market participants.