Tax on corporate transactions in South Africa: overview

A Q&A guide to tax on corporate transactions in South Africa.

The Q&A gives a high level overview of tax in South Africa and looks at key practical issues including, for example: the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.

To compare answers across multiple jurisdictions, visit the Tax on corporate transactions Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to tax on corporate transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-mjg.

Brian Dennehy, Webber Wentzel
Contents

Tax authorities

1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction?

The tax authority responsible for enforcing all direct and indirect taxes in South Africa is the South African Revenue Service (SARS).

Pre-completion clearances and guidance

2. Is it possible to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction?

SARS has the authority to issue the following in respect of certain transactions or tax matters:

  • Binding private rulings.

  • Binding class rulings.

  • Binding general rulings.

  • Non-binding opinions.

These forms of tax clearance are only available for anticipated actual transactions, not for a hypothetical set of facts. SARS generally provides its view within one to two months of receiving the ruling request.

SARS has also published a "non-ruling" list, which includes various transactions that it is prohibited from ruling on. These include, for example, transactions that are often associated with general anti-avoidance.

Legislation introduced in 2011 now also requires companies to obtain approval in respect of debt raised or acquired to implement certain reorganisation transactions, namely "intra-group transactions" and "liquidation distributions", both of which are often used to facilitate debt push down structures in leveraged buyouts. The approval of these transactions is required before the interest on the debt funding can be deducted for income tax purposes.

 

Main taxes on corporate transactions

Transfer taxes and notaries' fees

3. What are the main transfer taxes and/or notaries' fees potentially payable on corporate transactions?

Securities transfer tax (STT)

Previously known as stamp duty or marketable securities transfer, securities transfer tax (STT) is a transfer tax payable on the transfer of beneficial ownership of a security, which includes shares and depository receipts in any resident company, as well as any locally listed non-resident company.

In the case of an unlisted security, STT is payable by the company whose securities are being transferred, but is ultimately recoverable from the purchaser. In the case of a listed security, STT is payable by the relevant central securities depository participant (CSDP) or authorised user of the exchange, and is then also recoverable from the purchaser.

Generally speaking, STT is payable at a rate of 0.25% of the purchase consideration for the relevant security, unless that consideration is less than market value, in which case the STT is based on the market value.

STT is also payable on the redemption or repurchase of securities, and the tax is payable by the company whose shares are redeemed or repurchased.

Transfer duty

Transfer duty is levied on the transfer and acquisition of any property located in South Africa. This tax is payable by the purchaser, and in the case of companies is levied at a flat rate of 8%.

"Property" in this context includes, among other things:

  • Any real right in land.

  • A lease or sub-lease.

  • Mining rights.

  • Prospecting rights.

  • Shares in residential property companies.

  • Shares in share block companies.

Corporate and capital gains taxes

4. What are the main corporate and/or capital gains taxes potentially payable on corporate transactions?

Corporate income tax

Corporate tax is charged at a flat rate of 28% on a resident company's taxable income for each year of assessment (that is, each financial year). South Africa calculates taxable income based on a taxpayer's worldwide profits, subject to the provisions of any applicable double tax treaty.

A company's income generally includes all of its trading income and passive income, excluding local dividends (which are exempt). Various deductions are then allowed against income to determine taxable income, including:

  • Allowable expenditure.

  • Capital allowances.

  • Credits for foreign tax paid.

  • Any allowable losses.

With effect from years of assessment commencing on or after 1 March 2012, 66.67% of the net capital gains realised by a company are also included in its taxable income for each year of assessment, resulting in an effective capital gains tax (CGT) rate for companies of 18.67%.

Up until 1 April 2012, South Africa also levied secondary tax on companies (STC) at 10% (this was a tax on dividends paid by companies). This resulted in an effective corporate tax rate of 34.55%.

However, the STC regime was replaced with a more internationally recognisable dividends withholding tax regime on 1 April 2012, this being a shareholder-borne tax on dividends levied at 15% (subject to reduction under the double tax treaty network).

Value added and sales taxes

5. What are the main value added and/or sales taxes potentially payable on corporate transactions?

Value added tax (VAT)

Value added tax (VAT) is the principal form of indirect tax levied in South Africa on every taxable supply of goods or services.

The standard rate of VAT is 14%, although certain goods and services are zero rated (for example, exported goods and services and specified basic foods) or exempt (for example, financial services, education and residential accommodation).

A person who carries on an enterprise and provides "taxable supplies" in excess of ZAR1 million per year must register as a "vendor" (as at 1 March 2012, US$1 was about ZAR7.5). A person can register voluntarily as a vendor if it can show that it is in the process of acquiring an enterprise, or part of an enterprise as a going concern, of which the total value of taxable supplies in the preceding 12 months exceeded ZAR50,000. Alternatively, SARS must be satisfied that the applicant is already carrying on an enterprise and that the total value of taxable supplies made by it in the preceding 12 months exceeded ZAR50,000.

Unlike most foreign VAT jurisdictions, the South African VAT regime does not provide for place of supply rules and all supplies made by a vendor fall to be taxed in South Africa. However, supplies made by a vendor outside South Africa may fall outside the scope of the South African VAT regime in certain circumstances. The majority of business transactions will fall within the scope of the VAT regime, and will be subject to VAT.

In practice, the VAT system operates as follows:

  • A vendor incurs VAT on taxable supplies made to it in the furtherance of his enterprise (input tax).

  • The vendor charges VAT on the taxable supplies made by it in the course of or furtherance of its enterprise (output tax).

The "input tax" incurred can be claimed by a vendor as a deduction from the "output tax" that it must account for, and the vendor must pay the net amount to SARS periodically. Where a vendor's "input tax" exceeds its "output tax", the excess must be refunded to the vendor by SARS.

Any business registered as a VAT vendor in South Africa, and which acquires any taxable goods or services, will effectively incur no VAT cost, since any VAT payable is fully reclaimable. The ultimate tax burden rests on the consumer or final recipient of the taxable supplies.

Other taxes on corporate transactions

6. Are any other taxes potentially payable on corporate transactions?

Donations tax

Donations tax is levied at a flat rate of 20% on the value of all property donated, which at a common law level means disposed of gratuitously or liberally. "Property" in this context means any right in, or to, property, movable or immovable, corporeal or incorporeal, wherever it is situated.

Where property is disposed of for what SARS views as "inadequate consideration", this can also be subject to donations tax.

Certain exemptions from donations tax do exist, most notably:

  • Donations by public companies.

  • Donations within a group of companies (that is, companies at least 70% held, directly or indirectly).

  • Donations to approved public benefit organisations.

Taxes applicable to foreign companies

7. In what circumstances will the taxes identified in Questions 3 to 6 be applicable to foreign companies (in other words, what "presence" is required to give rise to tax liability)?

STT

Non-resident companies are subject to STT in respect of the acquisition of qualifying securities (as defined in Question 3).

Transfer duty

Non-resident companies are subject to transfer duty in respect of the acquisition of property (as defined in Question 3).

Corporate income tax

Non-resident companies are liable for:

  • Corporate income tax on all profits attributable to a South African permanent establishment (PE), or profits deemed to have accrued from a source within South Africa.

  • CGT in respect of the disposal of any assets attributable to a PE in South Africa, immovable property situated in South Africa, as well as land rich property holding companies.

A company will be regarded as a land rich property holding company if the non-resident holds at least 20% of the equity shares in that company, and if at least 80% of the market value of those shares is attributable, directly or indirectly, to immovable property held in South Africa otherwise than as trading stock.

A PE is defined in South African tax law with reference to the definition in Article 5 of the OECD Model Tax Convention on Income and on Capital (MTC). Generally, a company has a South African PE if it has a fixed place of business in South Africa or an agent acting on its behalf, which habitually exercises authority to do business on behalf of that company in South Africa (except where the agent has independent status and acts in the ordinary course of its business).

VAT

The imposition of VAT in South Africa depends on where the supply occurs rather than the tax residence of the supplier, although the place of supply may depend on where the supplier has established its business or has a fixed establishment.

Accordingly, non-resident companies that make supplies of goods or services in South Africa may be required to register for VAT in South Africa.

 

Dividends

8. Is there a requirement to withhold tax on dividends or other distributions?

Dividends tax

South Africa introduced a new withholding tax regime to replace the previous STC regime on 1 April 2012. Dividends tax is an internationally recognisable regime, requiring the company declaring the dividend or the regulated intermediary (for example, the central securities depository participant (CSDP) or authorised user in the case of listed shares) to withhold and pay over to SARS dividends tax at a rate of 15% of the amount of any dividend declared and paid to a shareholder.

Certain dividends are exempt from dividends tax, most notably:

  • Local company-to-company dividends.

  • Dividends declared and paid to public benefit organisations.

  • Dividends declared and paid to retirement funds.

The 15% dividends tax rate is also subject to a reduction to (at the lowest rate) 5% in terms of qualifying double tax treaties, where the requisite number of shares in the paying company are held by the non-resident shareholder.

Dividends tax also applies to dividends declared and paid in specie, although the liability in this case falls upon the company declaring and paying the dividend, not the shareholder.

Cash dividends declared and paid by dual listed companies in respect of their locally listed shares to South African resident shareholders are also subject to dividends tax.

 

Share acquisitions and disposals

Taxes potentially payable

9. What taxes are potentially payable on a share acquisition/share disposal?

Corporate income tax

A company selling shares as a long term strategic investment will be subject to CGT at an effective rate of 18.67% (see Question 4) on the capital gain realised. Conversely, a company selling shares as a trader will generally be subject to income tax at 28% (see Question 4) on any trading profit realised.

Furthermore, shares disposed of after being held for a continuous period of at least three years are automatically subject to CGT.

STT

STT is payable, ultimately by the purchaser, on the acquisition of shares in a local company, with the tax levied at a rate of 0.25% of the consideration paid (see Question 3).

Exemptions and reliefs

10. Are any exemptions or reliefs available to the liable party?

Certain share disposals may qualify for relief under South Africa's corporate rules. These are specific sections that provide relief from, among other things, corporate income tax (including CGT) for qualifying:

  • Asset-for-share transactions.

  • Amalgamation transactions.

  • Intra-group transactions.

  • Unbundling transactions.

  • Liquidation distributions.

A qualifying corporate transaction implemented using these corporate rules is given tax concessions in the form of roll-over relief from, among other things, corporate income tax (including CGT) and STT.

Asset-for-share transactions

An "asset-for-share transaction" is defined as a transaction where a person disposes of an asset (in this case shares in a company) to a South African resident company in exchange for equity shares in that company where such person, after that transaction, holds a qualifying interest in that company, that is either:

  • Equity shares that constitute at least 20% of the equity shares and voting rights of the company concerned.

  • Equity shares that are listed, or will be listed, within 12 months after the transaction.

  • Equity shares that are in a company which forms part of the same "group of companies" (see Question 6) as the acquiring company.

Amalgamation transactions

An "amalgamation transaction" involves the disposal by an amalgamated company of all its assets (in this case shares in a company) to an acquiring company in exchange for shares in the acquiring company which are then distributed to the shareholders of the amalgamated company in anticipation of winding up.

Intra-group transactions

An "intra-group transaction" is defined as a transaction where any asset (in this case shares in a company) is disposed of by a company to a resident company that is part of the same "group of companies".

Unbundling transactions

An "unbundling transaction" is a transaction that is carried out to enable the shareholder of any resident listed unbundling company, or the resident holding company of any resident unlisted unbundling company, to acquire all the equity shares held by that unbundling company in the company which is to be unbundled, in accordance with the effective interest of such shareholders.

Liquidation distributions

A "liquidation distribution" is a transaction involving the distribution by a liquidating company of all its assets (which in this case would include shares in a company) to its resident holding company.

The transactions referred to above are subject to a number of specific restrictions.

Tax advantages/disadvantages for the buyer

11. Please set out the tax advantages and disadvantages of a share acquisition for the buyer.

Advantages

The tax advantages for the buyer are:

  • STT is only charged at 0.25% of the purchase consideration (see Question 3), even if the property is land-rich.

  • Any tax losses in the target company remain available for use once acquired by the buyer.

Disadvantages

The tax disadvantages for the buyer are:

  • Any interest incurred on debt funding raised to acquire the target company shares is non-deductible.

  • No deduction or allowance will be obtained for corporate income tax purposes in respect of the acquisition cost of the target company shares.

Tax advantages/disadvantages for the seller

12. Please set out the tax advantages and disadvantages of a share disposal for the seller.

Advantages

Only one instance of corporate income tax will be incurred, at either 28% or at the effective CGT rate for companies at 18.67% (see Question 3) in respect of the disposal of the shares in the target company.

Disadvantages

The seller will not be able to utilise any tax losses in the target company to set-off against any profit that it realised.

Transaction structures to minimise the tax burden

13. What transaction structures (if any) are commonly used to minimise the tax burden?

Dividend-stripping transaction structures have been commonly used, particularly where the seller is a company, given the fact that prior to 1 April 2012 STC was levied at 10% on dividends, and from 1 April 2012 local corporate-to-corporate dividends are exempt from dividends tax. In other words, this form of transaction structure has traditionally resulted in an efficient tax arbitrage in relation to the effective CGT rate of 18.67% that would apply on a straight disposal of shares.

It must be emphasised, however, that the anti-avoidance legislation dealing with dividend-stripping transaction structures is currently undergoing significant amendment, and will now require careful consideration prior to implementation.

 

Asset acquisitions and disposals

Taxes potentially payable

14. What taxes are potentially payable on an asset acquisition/asset disposal?

From the seller's perspective, the following taxes are generally payable:

  • Corporate income tax (at 28%) in respect of any recoupments of deductions and allowances previously claimed in respect of capital assets disposed of (see Question 4).

  • CGT at 18.67% in respect of any net capital gains realised in respect of both tangible and intangible (for example, goodwill) assets disposed of (see Question 4).

  • VAT at 14% in respect of the assets disposed of, constituting a taxable supply of goods (see Question 5).

Dividends tax may also become payable at 10% (see Question 8) to the extent that the seller distributes the after tax proceeds realised above to its shareholders.

Exemptions and reliefs

15. Are any exemptions or reliefs available to the liable party?

South Africa's corporate rules (see Question 10) may apply, to the extent that the various requirements of these sections are applicable, to minimise the taxes incurred, particularly where the disposal takes place between related parties.

Furthermore, from a VAT perspective, the disposal of a business as a going concern is generally zero-rated, that is, subject to VAT at 0%.

Tax advantages/disadvantages for the buyer

16. Please set out the tax advantages and disadvantages of an asset acquisition for the buyer.

Advantages

The tax advantages for the buyer are:

  • Any interest incurred on debt funding raised to acquire business assets is generally deductible for income tax purposes.

  • The purchase price paid for qualifying business assets acquired may qualify for future deductions and capital allowances. This would apply, for instance, in the case of plant and machinery, buildings, and other fixed assets acquired by the buyer.

Disadvantages

The tax disadvantages for the buyer are:

  • Immovable property acquired may be subject to transfer duty at 8% (see Question 3).

  • Any existing tax losses in the seller cannot be transferred to the buyer.

Tax advantages/disadvantages for the seller

17. Please set out the tax advantages and disadvantages of an asset disposal for the seller.

Advantages

Any existing tax losses may be set-off against profits realised on the disposal of such assets to the buyer.

Disadvantages

Multiple instances of tax may be incurred on an asset disposal (see Question 14) which would not otherwise be incurred on a share disposal.

Transaction structures to minimise the tax burden

18. What transaction structures (if any) are commonly used to minimise the tax burden?

South Africa's corporate rules (see Question 10) are often used to minimise the tax burden otherwise incurred by a seller on an asset deal, subject to the requirements of these sections being satisfied.

 

Legal mergers

Taxes potentially payable

19. What taxes are potentially payable on a legal merger?

A legal merger may result in the following taxes being payable:

  • Corporate income tax (at 28%), or CGT (at 18.67%) in respect of the disposal of the merged assets (see Question 4).

  • Transfer duty (at 8%) in respect of any immovable property transferred under the merger (see Question 3).

  • STT (at 0.25%) in respect of any shares transferred under the merger (see Question 3).

  • VAT (at a maximum rate of 14%) in respect of any "goods" transferred under the merger, unless such "goods" are disposed of as part of a going concern (see Questions 5 and 15). VAT is not levied in respect of the disposal of shares or securities.

Exemptions and reliefs

20. Are any exemptions or reliefs available to the liable party?

South Africa's corporate rules (see Question 10) are often used to minimise the tax burden otherwise incurred by a seller on an asset deal, subject to the requirements of these sections being satisfied.

Transaction structures to minimise the tax burden

21. What transaction structures (if any) are commonly used to minimise the tax burden?

No commonly used transaction structures exist. Structures that do minimise the tax burden would generally take advantage of the available corporate rules (see Question 10), to the extent that the requirements of these sections are satisfied.

 

Joint ventures

Taxes potentially payable

22. What taxes are potentially payable on establishing a joint venture company (JVC)?

The taxes incurred on establishing a JVC depend entirely on what assets each member contributes to the company. Generally, these taxes would include:

  • Corporate income tax (at 28%), or CGT (at 18.67%) in respect of the disposal of the assets to the JVC (see Question 4).

  • Transfer duty (at 8%) in respect of any immovable property transferred to the JVC (see Question 3).

  • STT (at 0.25%) in respect of any shares transferred to the JVC (see Question 3).

  • VAT (at a maximum rate of 14%) in respect of any "goods" transferred to the JVC, unless such "goods" are disposed of as part of a going concern (see Questions 5 and 15). VAT is not levied in respect of the disposal of shares or securities.

Exemptions and reliefs

23. Are any exemptions or reliefs available to the liable party?

There are no specific exemptions or reliefs available. However, the "asset-for-share transaction" tax concessions are often used to minimise the potential tax burden (see Question 24).

Transaction structures to minimise the tax burden

24. What transaction structures (if any) are commonly used to minimise the tax burden?

The tax concessions dealing with "asset-for-share transactions" (see Question 10) are often used to minimise the tax burden associated with the establishment of a JVC. These concessions are available where, for example, the relevant JVC member disposes of its asset(s) to the JVC in exchange for at least 20% of the equity shares and voting rights in the JVC. In this instance, the existing tax cost of the contributed assets will be "rolled over" into the JVC, as well as the shares in the JVC received by the JVC member in return. A qualifying "asset-for-share transaction" of this nature will be exempt from corporate income tax (including CGT), STT and VAT.

 

Company reorganisations

Taxes potentially payable

25. What taxes are potentially payable on a company reorganisation?

The taxes payable on a company reorganisation are generally the same as those described in Question 19.

Exemptions and reliefs

26. Are any exemptions or reliefs available to the liable party?

The exemptions or reliefs available are contained in the various corporate rules (see Question 10), which apply to the extent that the requirements of these sections are satisfied. If applicable, relief from corporate income tax (including CGT), STT, VAT and transfer duty can be obtained.

Transaction structures to minimise the tax burden

27. What transaction structures (if any) are commonly used to minimise the tax burden?

Each individual transaction should be structured to take best advantage of the reliefs and exemptions available.

 

Restructuring and insolvency

28. What are the key tax implications of the business insolvency and restructuring procedures in your jurisdiction?

Tax implications for the business

The business may be required to reduce its assessed tax loss to the extent that the debt restructuring results in any compromise or concession given by a creditor in relation to a debt owed, to the extent that such debt relates to expenditure previously claimed as a corporate income tax deduction.

Any such debt owed by a business to a creditor that is forfeited and not otherwise used to reduce the company's assessed tax loss on this basis will, in turn, be taxed in full as a corporate income tax recoupment (at 28%).

The reduction by a creditor of the capital component of a claim owed by a debtor company for a consideration not at least equal to face value may also result in a capital gain for the debtor company, which will be subject to CGT at 18.67%.

Tax implications for the owners

The owners of the business will generally realise capital losses on the ultimate liquidation of the company (if applicable). Otherwise, no further direct tax consequences should be incurred by the owners.

Tax implications for the creditors

To the extent that any compromise or concession is afforded by the creditor in respect of a claim that was previously subject to corporate income tax (for example, capitalised interest or a trade receivable), then that claim will qualify as a deduction in the creditor's hands.

Similarly, the creditor will realise a capital loss to the extent that any such forfeited claim is capital in nature (for example, the principal amount of a loan).

 

Share buybacks

Taxes potentially payable

29. What taxes are potentially payable on a share buyback? (List them and cross-refer to Questions 3 to 6 as appropriate.)

Unlisted share repurchases

The tax consequences of share repurchases depends largely on what portion of the repurchase consideration comprises a return of capital (including share premium, if any), and what portion comprises a distribution of profits.

A return of capital by a company to a shareholder is not subject to dividends tax (see Question 10) in the shareholder's hands. Instead, a return of capital is treated as proceeds received by a shareholder, and therefore taken into account in determining the shareholder's corporate income tax (including CGT) consequences (see Question 9) arising on the disposal of its shares in the company.

Conversely, the portion of the repurchase consideration that comprises a distribution of profits by the company will be subject to dividends tax (subject to any applicable exemptions or reductions that apply).

The receipt of such dividend will, in most cases, be exempt from corporate income tax in the shareholder's hands.

STT is also payable by a company on the repurchase of its shares, with that tax amounting to 0.25% of the market value of the shares repurchased (see Question 9).

Listed share repurchases

With effect from 1 April 2012, the tax consequences for listed share repurchases is determined based on whether the repurchase constitutes a general repurchase or a specific repurchase, as contemplated in the Johannesburg Stock Exchange (JSE) Listings Requirements.

General listed share repurchases are treated as a return of capital for tax purposes in full for corporate income tax and dividends tax purposes (that is, the full repurchase consideration received by a shareholder is subject to either corporate income tax (at 28%) or CGT (at 18.67%), with no dividends tax being incurred).

Conversely, specific listed share repurchases will have the same tax consequences currently applicable to unlisted share repurchases (see above, Unlisted share repurchases).

Exemptions and reliefs

30. Are any exemptions or reliefs available to the liable party?

The dividend component of a share buyback may be exempt from dividends tax, if distributed to, among other things, either:

  • A local corporate shareholder.

  • A public benefit organisation.

  • A retirement fund.

Transaction structures to minimise the tax burden

31. What transaction structures (if any) are commonly used to minimise the tax burden?

The tax legislation provides a degree of flexibility in allowing an unlisted company to determine how much of its repurchase consideration will comprise a return of capital versus a distribution of profits. However, a new capping rule was fairly recently introduced (with effect from 1 January 2011) that limits the amount of capital deemed to be transferred to a shareholder. Under this new capping rule, the amount of capital that is deemed to be transferred to a shareholder whenever an actual transfer of capital takes place is limited to the shareholder's attributable equity interest in the company immediately before that distribution. For example, if an actual distribution of capital is made to a 20% shareholder, the maximum amount of capital deemed to be transferred is limited to 20% of the company's capital before that distribution. Any excess amount actually transferred is then in turn deemed to be a dividend for tax purposes.

 

Private equity financed transactions: MBOs

Taxes potentially payable

32. What taxes are potentially payable on a management buyout (MBO)?

The tax consequences associated with an MBO depend entirely on whether the transaction is structured as a share deal (the tax consequences of which are described in Question 9) or as an asset deal (the tax consequences of which are described in Question 14).

Exemptions and reliefs

33. Are any exemptions or reliefs available to the liable party?

No specific exemptions or reliefs are available for MBOs, although the tax concessions contained in the various corporate rules (see Question 10) are often used to structure such transactions as efficiently as possible.

Transaction structures to minimise the tax burden

34. What transaction structures (if any) are commonly used to minimise the tax burden?

Debt pushdown transaction structures are commonly used on MBOs to minimise the tax burden. This structure typically involves the bidder acquiring the shares in the target company from the seller(s), followed by an internal reorganisation of the target businesses using the "intra-group transaction" tax concessions (see Question 10).

Debt pushdown structures are an efficient means of "pushing down" the acquisition debt on a MBO structured as a share deal to the operating company level, therefore ensuring that the funders' debt is not structurally subordinated, but rather directly secured against the target's operating assets. Furthermore, the debt pushdown should result in the interest incurred on that funding being fully deductible by the operating company.

Transaction structures such as this are subject to pre-clearance from SARS (insofar as the deductibility of interest on the debt funding is concerned), which generally takes between one to two months.

 

Reform

35. Please summarise any proposals for reform that will impact on the taxation of corporate transactions.

Many tax amendments are expected over the next two to three years in the context of corporate transactions, including:

  • Changes to the anti-avoidance rules dealing with hybrid equity instruments. These are equity funding instruments (such as preference shares) with debt-like features. If tainted, the dividends received or accrued in respect of hybrid equity instruments is fully taxed (at 28%) in the holder's hands, instead of being treated as an exempt dividend.

  • The corporate rules (see Question 10) are expected to be significantly amended to align with the merger provisions of the new Companies Act that was introduced in South Africa in 2011.

  • The pre-approval process and post-transaction disclosure requirements in respect of debt pushdown structures (see Question 34) is subject to further change.

  • The tax implications associated with business insolvency and restructuring procedures (see Question 28) are expected to change in order to provide tax relief for the insolvent company.

  • The tax treatment of contingent liabilities assumed by a purchaser from a seller in the context of a sale of a business as a going concern is expected to be clarified.

 
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