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August 2, 2023
2023-1352

South Africa's 2023 draft Tax proposals

  • The South African government has issued two pieces of draft tax legislation that are open for public comment until 31 August 2023.
  • Taxpayers and their representatives will want to become familiar with the proposals and consider commenting on them.
  • This Tax Alert highlights the key proposals in each piece of legislation.

Introduction

The National Treasury and the South African Revenue Service (SARS) published, on 31 July, the 2023 draft Taxation Laws Amendment Bill (2023 Draft TLAB) and 2023 draft Tax Administration Laws Amendment Bill (2023 Draft TALAB) for public comment.

2023 Draft TLAB — summary

Key tax proposals contained in the 2023 Draft TLAB include:

  • Tax incentive proposals relating to renewable energy, research and development, and the Urban Development Zone
  • Adjusting the minimum royalty rate for oil and gas companies
  • Codifying the interest deductibility principles contained in Practice Note 31 of 1994
  • Clarifying anti-avoidance rules dealing with third-party-backed shares
  • Refining the provisions applicable to unbundling transactions
  • Clarifying the foreign business establishment (FBE) exemption for controlled foreign companies (CFCs)
  • Refining the participation exemption for the sale of shares in foreign companies
  • Two value-added tax (VAT) provisions, namely reviewing the VAT treatment of specific supplies in the short-term insurance industry and clarifying the VAT treatment of prepaid vouchers in the telecommunications industry

The draft legislation clarifying the FBE exemption proposes that the FBE definition be amended to read that all the important functions of the business for which the CFC is compensated must effectively be in-sourced and performed in-country. Essentially, this means that companies relying on outsourced operating models where primary functions are outsourced and performed in other countries will not be able to access an FBE exemption. If implemented in its current form, the legislation could have a significant impact on the cost of doing business when expanding offshore, because certain functions cannot be centralized.

2023 draft TALAB

Key tax proposals contained in the 2023 Draft TALAB include:

  • Advance Pricing Agreement (APA) program1
  • Employees' tax registration requirement for non-resident employers
  • Variation of employees' tax withholding in respect of remuneration
  • Expanding the general disclosure provisions for section 18A approved organizations2
  • Alignment with anti-money laundering and combatting terrorism developments

Other notable proposals

Other notable proposals include:

  • Draft Regulations in terms of paragraph (d) of the definition of "Research and Development" in section 11D(1) of the Income Tax Act on additional criteria for multisource pharmaceutical products
  • Draft Regulations in terms of paragraph (e) of the definition of "Research and Development" in section 11D(1) of the Income Tax Act on criteria for clinical trials in respect of deductions for research and development
  • Draft Regulations on domestic reverse charge relating to valuable metal in terms of section 74(2) of the VAT Act, 1991
  • Draft Carbon Offset Regulations

Due date for comments

The public has been invited to provide written input on any of the above to National Treasury and SARS by close of business on 31 August 2023.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services (Pty) Ltd.

Ernst & Young LLP (United States), Pan African Tax Desk, New York

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ENDNOTES

1 See EY Global Tax Alert, South Africa proposes an Advance Pricing Agreement (APA) program, dated 1 August 2023.

2 Certain nonprofit organizations that have qualified for tax-exempt status.

 

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