South African incentives for headquarters in Africa
By Graeme Saggers, Nolands SA
A company that is tax resident in South Africa has the opportunity to benefit from a range of tax incentives that are available to headquarter companies (HQCs). The purpose of this regime is to minimise the tax incidence investment in Africa. The following incentives are available to HQCs and generally apply to transactions between an HQC and a foreign company in which they hold at least a 10% share.
- Foreign dividends received are exempt from tax;
- Dividends distributed by the HQC will be regarded as foreign dividends and therefore South African shareholders will be exempt from dividend tax if their shareholding is greater than 10%;
- Exemption from controlled foreign company rules which would ordinarily attribute the net income of a foreign entity to the South African shareholder;
- Relief from thin capitalisation principles in circumstances where funds borrowed from a non-resident are on-lent to a foreign company in the same group or financial assistance;
- Relief from transfer pricing rules on IP licences from an HQC to a nonresident company;
- Relief from interest and royalty withholding taxes which would ordinarily be levied at 15%;
- Capital gains or losses in respect of the disposal of equity shares in a foreign company are disregarded.
There are certain requirements which must be met for a company to qualify as an HQC.
The most significant of these are that at least 80% of the assets must relate to shares, debt or IP attributable to a foreign company and that at least 50% of the income must relate to the foreign company whether in the form of rental, dividends, interest, royalty, service fees or disposals of equity interests.
Nolands SA, Mowbray, Cape Town, South Africa
T: +27 21 658 6600
Nolands SA is a national auditing firm, located in ten offices in all major centres in South Africa and Mauritius, employing almost 200 people focused on providing the best possible solutions for its clients. Nolands prides itself on being “not ordinary” and in its ability to integrate services and respond rapidly to clients’ needs.
Graeme Saggers is the Tax Director of Nolands Advisory Services Africa, which is the advisory division of the firm of Nolands. Graeme gained a Bachelor of Commerce and Honours in Accounting at Rhodes University and, after qualifying as a Chartered Accountant (South Africa), he joined Nolands where he is now head of the Tax Department.
published: November 2014