South Africa 183 Day Exemption & CFC Update:
In previous blogs, we had raised the prospect of changes to South Africa’s domestic Income Tax legislation. Of importance, was the proposed withdrawal of the tax exemption for South African tax residents who worked outside of South Africa for a sufficient period. Secondly, it had been proposed that where foreign companies were held more than 50% by offshore trusts with South African beneficiaries, that such companies would be taxed where the distributions came from the foreign company and that company would have been a CFC but for the trust.
The proposed changes were significant and would have significantly impacted many structures set up over the last many years. We now note that most of these proposed changes have been withdrawn. In terms of the recently released Taxation Laws Amendment Bill 2017, the proposed law will now read as follows:
The 183-day foreign earnings exemption will continue to be of application in respect of foreign earnings on an unlimited basis until the end of February 2020. Thereafter only foreign earnings exceeding 1 million Rand will be taxable.
Secondly, foreign companies held by foreign trusts with South African resident beneficiaries will not fall under the controlled foreign company definition.
Thirdly the proposal to tax distributions by foreign trusts to South African tax residents with a source from a foreign company which would have been a CFC in the absence of the trust has been removed.
Whilst we are pleased that the proposed amendments have not been forthcoming, we note that there are likely to appear at some point in the future. Contingency planning is therefore recommended, and we invite you to contact us should you need to discuss this.