AFRICA: New international tax laws on the cards South Africa

National Treasury has several Bills open for public comment, which could benefit South Africans with offshore investments.

National Treasury recently published draft Tax and Revenue Law amendment Bills, designed to tighten certain loopholes and address inconsistencies.

These drafts contain a host of robust proposed changes to tighten certain loopholes and inconsistencies in South Africa’s tax law.

Although these proposed changes focus more on the technical aspects of South Africa’s tax regulations for large corporations, trusts, and businesses, some amendments may also impact South African individuals.

“Against the backdrop of a historically sluggish economy, a depreciating Rand, and social uncertainty, many South Africans have expanded their investment portfolios abroad,” said Tax Consulting SA.

“By including exposure to various foreign assets, many South Africans have been able to leverage beneficial arbitrage and speculative opportunities.”

“Whilst lucrative, South Africans with such diverse investments may discover themselves involved in a complex tax web when they dispose of their foreign assets.”

Since 2001, South Africans have been held liable for Capital Gains Tax (CGT), levied on the profit derived when they dispose of an asset, whether in South Africa or abroad.

Where a CGT liability is triggered when an individual realises a capital gain, then 40% of the gain is included in that individual’s normal taxable income.

The individual’s marginal tax rate is then applied, which can total 45%.

From there, the maximum possible effective CGT tax rate equates to 18%.

Moreover, when a foreign asset is sold, South African taxpayers may also be liable for CGT in the country where the asset is found.

To prevent a potential double CGT, South Africans can claim a tax credit against their local CGT liability if foreign CGT has already been paid.

“Without delving into the technicalities, this rebate does have limitations in cases where foreign CGT rates are greater than the South African CGT rate, creating the possibility for a double or ‘over’ taxation of CGT, comparatively speaking,” said Tax Consulting SA.

“In a somewhat surprising move, the National Treasury has highlighted this possible disparity in the application of the foreign tax rebate and appears to want to mitigate the tax burden wealthy South Africans are facing under the current dispensation.”

To prevent a potential double tax risk, the National Treasury has announced that the foreign tax rebate, in its current form, does not align with its original intention.

It has thus proposed a clarification, which could see South Africans benefiting from the ability to claim a full tax credit on foreign CGT paid.

“The proposed amendments to the Tax and Revenue Laws offer a welcome development for South African resident taxpayers, particularly those with significant offshore investments,” said Tax Consulting SA.

“By addressing the potential for double taxation on capital gains, National Treasury’s proposed clarification of the foreign tax credit provisions is a positive step towards ensuring a fairer and more equitable tax regime.”

“For wealthy South Africans navigating the complexities of global investments, this change could provide much-needed relief and reinforce confidence in their financial planning strategies.”