|controlled foreign company (“CFC”)|
Certain profits of CFCs are included in the taxable income of resident shareholders which holds 10% or more of the voting rights / participation rights in that CFC, in proportion to the shareholding held in the CFC, and taxed at the corporate income tax rate.
A CFC is a foreign company and in which >50% of the participation rights / voting rights are held / exercisable by South African residents who are not headquarter companies.
A full exemption from imputation is available where the CFC is “highly taxed” (simplistically stated, taxed at a rate of ≥ 21%).
Alternatively, specific income streams will be exempt where such income is “active business income” (e.g. not rental, royalties, dividends, interest) and non-diversionary in nature (income received from South African connected parties should be tested under the diversionary rules).
double tax agreements (“DTAs”)
South Africa has DTAs in force with: Algeria, Australia, Austria, Belarus, Belgium, Botswana, Brazil, Bulgaria, Cameroon , Canada, Chile, China, Congo (Dem. Rep.), Croatia, Cyprus, Czech Republic, Denmark, Egypt, Ethiopia, Finland, France, Germany, Ghana, Greece, Grenada, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kenya, Korea (Rep.), Kuwait, Lesotho, Luxembourg, Malawi, Malaysia, Malta, Mauritius, Mexico, Mozambique, Namibia, the Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Slovak Republic, Spain, Swaziland, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Tunisia, Turkey, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Zambia, and Zimbabwe.
South Africa signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.