This Tax Update covers the Commencement of Expat Tax, Final Carbon Offset Regulations, BGR: Relief in respect of Tax Treaties and Clarification on interpretation of “Group of Companies”.

Foreign Employment Income Tax:

  • The current applicable law to South African tax residents who work abroad allows for an exemption for income earned abroad provided that more than 183 days are spent outside SA in any 12-month period and of these 183 days 60 days are continuously spent outside of SA.
  • As at 1 March 2020 the new tax provisions shall provide for an exemption for only the first R1 million, any foreign employment income beyond this threshold shall be taxed in South Africa at the applicable marginal tax rate.
  • South African tax residents will however in most instances be credited in South Africa for taxes already paid abroad, to avoid double taxation.
  • It’s important that South African working and living abroad obtains an opinion on their tax residency to see if they will be impacted by the changes to the legislation.

Final Carbon Offset Regulations

  • This framework outlines the eligibility of a taxpayer to utilise the carbon offset allowance and clarifies how taxpayers may use these offsets to reduce tax liabilities.
  • Customs and excise laws were also amended by introducing environmental levy rules.
  • These environmental levy rules address the submission of carbon tax accounts, the calculation of payable environmental levies as well as the licensing of emissions facilities.

Binding General Ruling on Income Taxes which Qualify for Relief in terms of South Africa’s Tax Treaties

  • Broadly speaking tax treaties provide relief for taxes listed under the tax treaty. This ruling categorises the taxes which, in SARS’ opinion, fall under the purview of taxes on income or any identical or substantially similar taxes in terms of South Africa’s tax treaties.
  • The ruling confirms that the following taxes are taxes on income and therefore qualify for treaty relief under South Africa’s tax treaties recognised as:
    • Normal tax on taxable income, including a taxable capital gain
    • Tax on foreign entertainers and sportspersons,
    • Turnover tax on micro businesses,
    • Withholding tax on royalties,
    • Withholding tax on interest,
    • Dividends tax
  • The following taxes are not deemed to be taxes on income, but rather advance payments of normal tax:
    • Amounts withheld from payments to non-resident sellers of immoveable property;
    • Employees’ tax;
    • Provisional tax.
  • Customs and excise duties, certain types of levies, donations tax, estate duties and securities transfer tax are amongst the items excluded from qualifying for any relief in terms of a double tax agreement.
  • Any substantially similar taxes on income levied following the date of signature of the tax treaty should qualify for treaty relief.

Interpretation Note 75 (issue 3): The Exclusion of Certain Companies and Shares from a “Group of Companies” as Defined in section 41(1) of the Income Tax Act

  • At present the provision which defines a Group of Companies contains a wider definition according to section 1(1), while section 41(1) limits this definition for the purposes of corporate rules and relief measures afforded to groups.
  • The issue arises when these provisions are interpreted separately as this will impact whether controlled companies are regarded as part of a group of companies should the controlling company be disqualified under the corporate rules (for example where the controlled group company is a non-resident).
  • The new issue of the interpretation note confirms that the exclusion of non-residents companies by the proviso does not constitute discrimination under South Africa`s tax treaties. Therefore, South African tax resident subsidiaries of a non-resident controlled group company will not be able to benefit from the intra-group relief provided for in section 45 as they are outside the definition of what constitutes a group of companies in terms of section 41(1).