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South Africa: Open for Business

Companies establishing a business presence in South Africa should consider if they wish to trade via a branch or a subsidiary company.

Prior to 2012, setting up a South African company was not an attractive option for non-resident investors because there was an unusual dividend regime which resulted in the company bearing the tax liability on the dividend as opposed to the recipient.  This meant that dividends were effectively taxed twice: once on the company in South Africa and again in the home country of the recipient.    

Operating through a branch before 2012 was not particularly tax effective either since South African branches paid corporation tax at a rate of 33%, which was 5% higher than companies.  This was intended to level the playing field with companies that were being taxed on dividends as well as profits, but it actually served to deter inward investment.

Since 2012 South Africa has been open for business with a more favourable tax regime.  It now follows the international ‘norm’ of withholding tax applying to dividends. This is now borne at the recipient level allowing international investors to claim relief from double taxation.

Similarly, the taxation position for branches is more favourable as the 5% higher corporation tax rate for non-resident companies has been abolished.

The rate of dividend tax did however increase from 15% to 20% for dividends paid after 22 February 2017, but this should not be an issue for UK parent companies since dividend withholding tax is restricted to 5% under the UK / South African double tax treaty.

If you would like to discuss your international trading options further, please do not hesitate to get in touch.

10 Oct 17
Jane Hivey, Tax Consultant