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Ok. Got itNational Treasury and SARS recently published two draft tax laws for public comment. They aim to give effect to tax proposals announced in the 2017 Budget Speech.
These draft tax laws have been published for public comment prior to their formal introduction in Parliament. Nedbank will be providing feedback on these proposed changes via industry bodies. The final draft is likely to be issued sometime in October, with promulgation expected towards the end of the year.
Three of the proposals that we felt may affect you, are summarised below The two draft tax laws contain various proposed amendments. We have highlighted three of the proposed amendments in the table below that, in our view, are most likely to affect our clients. This depends on your personal circumstances.
Current situation |
Proposed change |
Potential effect |
South African residents who work abroad are currently exempt from tax on their foreign employment income if they are outside of South Africa for more than 183 days (of which 60 are continuous) in a tax year.
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National Treasury proposes removing this concession completely.
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The full amount of foreign employment income will be taxed in South Africa, considering the provisions of any applicable Double Taxation Agreement and any tax credits available to the South African taxpayer. |
Current situation |
Proposed change |
Potential effect |
As communicated previously, section 7C of the Income Tax Act was designed to deter the use of trusts for ‘perceived’ tax avoidance. Put simply, interest forgone on interest free or low interest loans to a trust by a South African resident is treated as a donation and is subject to donations tax.
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Interest free or low interest loans made to companies where the shares in the company are owned by a trust will be subject to the provisions of section 7C.
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Interest free or low interest loans made to companies (borrower) by natural persons (lender) where the shares in that company are owned by a trust to which the natural person is connected will now also be subject to the provisions of section 7C. |
Current situation |
Proposed change |
Potential effect |
South African residents are subject to tax on a worldwide basis. To curb avoidance, the Income Tax Act contains rules relating to CFCs. CFCs are generally defined as any foreign company where more than 50% of the total participation rights in that foreign company are directly or indirectly held, or more than 50% of the voting rights in that foreign company are directly or indirectly exercisable, by one or more residents of South Africa. These rules are generally aimed at ensuring that the net income of a CFC is included in the income of a South African resident in the proportion of such resident's participation rights to the total participation rights of the company.
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National Treasury proposes extending the application of the existing South African tax rules relating to CFCs to a foreign company, where the shares in that foreign company are held through a non-resident trust or foundation. In other words, CFCs held by interposed foreign trusts or foreign foundations (where the participation or voting control requirements are met) will be subject to the CFC rules. |
Any distributions made by a foreign trust or foreign foundation that holds shares in a foreign company (that would have otherwise been regarded as a CFC) to a South African resident beneficiary will be taxed. These distributions will be deemed to be income in the beneficiary's hands and taxable in South Africa.
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Please contact your relationship manager if you have any questions about how these potential changes may affect you. If you would like to read the draft legislation and the draft explanatory memorandum containing a comprehensive description of the draft amendments, they are on the National Treasury (www.treasury.gov.za) and SARS (www.sars.gov.za) websites.
Fiduciary Specialist Team
Head of Fiduciary: Tracy Muller
Coastal: Ronel Williams and Ilze Els
KwaZulu-Natal: Priscilla Reddhi
DISCLAIMER This communication is intended for general information purposes only and should not be construed as tax and/or legal advice. This communication has been prepared based on our bona fide interpretation of the Draft Taxation Laws Amendment Bill published for public comment on 19 July 2017 as well as the relevant law (as promulgated at the date of this communication). Nedbank Private Wealth provides estate and tax planning advice; however, we do not provide legal tax opinions/advice and you are requested to consult a professional tax advisor in this regard.