What’s relevant to us as investors:
Financial Sector Development
- Proposals will be published for simplifying and modernising procedures for cross-border investments in and out of South Africa. After taking public comments, treasury recognizes that some of the barriers identified also apply to domestic investors; we intend to consult further to explore how we can lower costs and barriers to all investment in South Africa.[1]
Capital gains tax
- With effect from 1 March 2012, the capital gains inclusion rate for individuals and special trust is increased from 25 per cent to 33.3 per cent, resulting in a maximum effective capital gains tax rate of 13.3 per cent (up from 10 per cent).
- The annual exclusion amount applicable to individuals and special trusts is increased from R20 000 to R30 000 (the exclusion amount on death is increased from R200 000 to R300 000).
- The primary residence exclusion is increased from R1.5 million to R2 million.[2]
- The effect of these above amendments are that the highest effective capital gains tax rate applicable to:
o Individuals and Special Trusts are increased from 10% to 13.32%
o Companies are increased from 14% to 18.65%.
o Trusts from 20% to 26.64% [3]
Taxation of payments from a South African or foreign retirement fund
- Anomalies relating to the taxation of lump sum and annuity payments from a South African or foreign retirement fund, as a result of the individuals’ tax residency status, will be considered during 2012/2013.[4]
Tax on financial transactions
- South Africa has a financial transaction tax on securities transfers, at a rate of 0.25 per cent. It is proposed that the current exemption for brokers should be abolished. Transactions for the broker’s benefit will be taxed at a lower rate. The inclusion of financial derivatives in the base of the securities transfer tax is also under consideration.[5]
Local managers of foreign funds
- Foreign investment funds often rely on the advice of South African fund managers in relation to African fund assets. This potentially raised the risk that such funds might be regarded as “effectively managed” in South Africa and therefore taxable here on their worldwide income and assets. It is felt that this risk has deprived local fund managers of foreign investment fund business and has caused such fund managers to relocate abroad in certain instances. It is proposed that legislation be introduced so that these funds are not inadvertently subject to worldwide taxation.[6]
Rationalisation of withholding tax on foreign payments
- In the absence of any tax treaty protection, international investors are currently subject to a royalty withholding tax charge of 12% and, with effect from 1 January 2013, will be subject to an interest withholding tax charge of 10%. Along with the proposal announced in this year’s Budget speech for the dividends tax to be increased to 15% when it comes into effect on 1 April 2012, it is proposed that the withholding tax rates on royalty and interest income also be increased to 15%. It is also proposed that the procedures in respect of these respective withholding taxes be coordinated in a more streamlined manner.[7]
Dividend Withholding Tax
- With effect from 1 April 2012, the Secondary Tax on Companies (STC) regime is to be replaced by a Dividends Withholding Tax (DWT) regime. In anticipation of this, the STC rate was lowered from 12.5% to 10%. Whilst dividends withholding tax was expected to be introduced at 10%, the 2012 budget unexpectedly proposed to introduce dividends tax at 15%. Section 64E of the Income Tax Act provides for a rate of 10% and it is unlikely that legislation to amend this rate would be passed by April 2012.
- Foreign dividends are also taxed at the maximum DWT rate, subject to applicable exemptions or reduced rates.
- The introduction of DWT is likely to see an increased administrative burden on both the taxpayer and companies but will bring South Africa in line with international best practice and is likely to make the country more investor–friendly.
- It is important to note that South African corporates and retirement funds are exempt from DWT.
- The corporate tax rate in South Africa is now finally simplified at a maximum of 28%. [8]
Interest and Foreign Dividend Exemption
- The interest and foreign dividend exemption threshold has not been revised. The domestic interest income and foreign dividend exemption for the tax year 2012/2013 will remain unchanged at:
o R22 800 per annum for taxpayers under the age of 65,
o R33 000 per annum for taxpayers aged 65 years and older,
o R3 700 per annum of which is in respect of foreign dividends. [9]
[1] http://www.treasury.gov.za/documents/national%20budget/2012/speech/speech.pdf
[2] http://deloitteblog.co.za.www102.cpt1.host-h.net/2012/02/20/south-african-budget-2012-budget-speech-facts-figures/
[3] http://www.oldmutual.co.za/markets/south-african-budget.aspx
[4] http://deloitteblog.co.za.www102.cpt1.host-h.net/2012/02/20/south-african-budget-2012-budget-speech-facts-figures/
[5] http://www.treasury.gov.za/documents/national%20budget/2012/speech/speech.pdf
[6] http://deloitteblog.co.za.www102.cpt1.host-h.net/2012/02/20/south-african-budget-2012-budget-speech-facts-figures/
[7] http://deloitteblog.co.za.www102.cpt1.host-h.net/2012/02/20/south-african-budget-2012-budget-speech-facts-figures/
[8] http://www.oldmutual.co.za/markets/south-african-budget.aspx
[9] http://www.oldmutual.co.za/markets/south-african-budget.aspx
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