Some of the more interesting changes in terms of International Tax and Exchange Control from the Budget Speech were:
TAX
The World is Getting Smaller
The Tax Administration Act and other legislation will be amended to make full use of joint audits with other tax administrations. Make sure your off-shore operations are in order!
Controlled Foreign Companies (CFC’s)
For CFC’s (in general where SA residents hold more than 50% of the shares of the foreign company), currently royalty income, other than certain royalties from a SA source, is not included when calculating the net income of the CFC. This is a mistake and will be corrected.
Further, in general where there is a passive income paid from one CFC to another CFC in the same group of companies, such income is excluded from a CFC imputation. However, our SA rules can turn dividends from hybrid equity instruments into income, which could result in net income for the CFC receiving the income. The rules will be corrected to ensure the general exemption remains.
These are both rather technical amendments and probably best left to your tax advisor.
EXCHANGE CONTROL
Keeping your inheritance and gifts offshore
Resident individuals may receive and retain abroad monetary and other legitimate gifts and donations received from a non-resident source without having to declare it to an Authorised Dealer.
Resident individuals may without reference to the Financial Surveillance Department retain foreign assets inherited from a South African estate, and residents with authorised foreign assets may also lend and/or dispose of such authorised foreign assets to other South African residents, subject to local tax disclosure and compliance.
Investment in offshore trusts
Tax compliant South African resident individuals may now invest authorised foreign capital in excess of the R10 million foreign capital allowance per calendar year via foreign domiciled and registered trusts – we would add one cautionary, please be aware of the tax issues involved.
“Small Balances” to remit after you cease to be a resident for tax purposes
Authorised Dealers may remit abroad, on a once-off basis, the remaining cash balances not exceeding R100 000 in total of private individuals who have ceased to be residents for tax purposes, without reference to the South African Revenue Service.
Foreign direct investments over R1b
The foreign direct investment limit for companies investing funds offshore that can be processed by Authorised Dealers has been increased from R1 billion to R5 billion, provided the prevailing investment conditions, tax obligations and reporting requirements are met. Foreign direct investments where the total cost of such investments exceeds R5 billion per investment, require the prior written approval of the Financial Surveillance Department
Last, we do caution that many of the exchange control amendments are provided on a prospective basis: previous contraventions will have to be regularised first!