1998 SOUTHERN AFRICA ECONOMIC ... - National Treasury

S O U T H A F R I C A
Ta x a t i o n
Some important aspects of the tax system are :
- Income in South Africa is taxed at sourc e.
- VAT is levied on goods and serv i c e s , except for some basic
fo o d s t u f f s .E x p o rts are also zero - r a t e d .The current VAT rate is
14 perc e n t .
- A tax loss incurred by a company in any business activity may
be carried fo r w a rd and set off against future profits until
e x h a u s t e d ,as long as the company continues to do business.
- P rofits may be repatriated and are not subject to withholding
t a x .
- T h e re is no capital gains tax in South A f r i c a .
- P a rtnerships and joint ve n t u res are not treated as separate
taxable entities. Each partner is taxed on his or her share of the
p a rt n e r s h i p ’s taxable income.
- Specific taxation legislation applies to mining, a g r i c u l t u re and
long-term insurance companies.
- In addition to normal income tax, t h e re is a secondary tax on
c o m p a n i e s .The tax is calculated on the net amount of dividends
d e c l a re d ,and is curre n t ly levied at 12.5 perc e n t .
- Double taxation agreements exist between South Africa and
the fo l l owing countries: B o t sw a n a ,D e n m a r k , F i n l a n d , F r a n c e,
G e r m a ny, H u n g a ry, I s r a e l , Ko re a , L e s o t h o, M a l aw i , N a m i b i a ,
N e t h e r l a n d s ,N o r w ay, Po l a n d ,the Republic of China, R o m a n i a ,
S w a z i l a n d ,S we d e n , S w i t z e r l a n d ,Ta n z a n i a ,T h a i l a n d , the United
K i n g d o m ,Zambia and Zimbabwe. The treaty with the United
Kingdom also extends to Gre n a d a ,M a u r i t i u s ,the Seychelles and
S i e rra Leone.T h e re are other countries who are in the pro c e s s
of negotiating double taxation agreements with South A f r i c a .
I nvestment Promotion A ge n c y
I nvestment South Africa was established by the Department of
Trade and Industry and was launched in Fe b r u a ry 1997. Its core
functions are to promote South Africa as a destination that will
attract fo reign direct investment and to provide inve s t o r
facilitation serv i c e s .Each of South A f r i c a ’s nine provinces has its
own investment promotion agency, and one of the roles of
I nvestment South Africa is to coordinate these activities at a
national leve l ,as well as to assist the provinces in developing the
c apacity to effe c t i ve ly attract and facilitate fo reign inve s t m e n t .
Systems to deal with incoming inquiries have been put in place,
as well as systems to put interested investors in touch with the
re l evant private and public sector playe r s . I nvestment South
A f r i c a ,in consultation and coordination with the Department of
Trade and Industry and re l evant agencies such as Khula,
implements a backward linkage programme focusing on
d eveloping supplier linkages between local SMEs and fo re i g n
i nve s t o r s .F u rt h e r m o re, I nvestment South Africa is also playing a
role in the streamlining of investment re g u l a t i o n s .
E x c h a n ge Contro l s
The South African Reserve Bank is in charge of the
administration of exchange contro l , with some re s p o n s i b i l i t i e s
being delegated to authorised fo reign exchange dealers, such as
c o m m e rcial banks. Some exchange control regulations that
might affect investors are as fo l l ow s :
If a South African resident borrows from a non-re s i d e n t ,p r i o r
ap p roval is re q u i red from the central bank.
Companies that are more than 75 percent owned or contro l l e d
by non-re s i d e n t s ,a re restricted in their local borrow i n g .T h e
restriction is related to the net wo rth of the company and the
amount of fo reign participation in the company.
Fo reign exchange may be provided for the payment of import s ,
if there is documentary evidence as to the receipt of goods in
South A f r i c a .I m p o rt permits may be re q u i red in some cases.
E x p o rters must ensure that the proceeds of the export are
re c e i ved in South Africa within six months of shipment,a l t h o u g h
authorised dealers may ap p rove credit up to 12 months if this is
n e c e s s a ry to retain the fo reign marke t .
T h e re is no restriction on the repatriation of pro f i t s ,or on the
t r a n s fer of dividends or branch pro f i t s . I n t e rest payments are
also fre e ly transfe r a b l e. The transfer of directors’ fees of ove r
ZAR4,000 (about USD794) per ye a r, management fees and
royalties are also subject to ap p roval by the central bank,
h oweve r. Dividends and interest payments are exempt fro m
normal and withholding tax.
N o n - residents are permitted to retain fo reign curre n c y
a c c o u n t s .
Companies are allowed to remit an amount of capital abro a d ,
with extended limits for the acquisition of fixed pro p e rty in
SADC countries.The Minister of Finance announced an incre a s e
in these amounts during his 1998/99 budget - the amount fo r
SADC countries was increased from ZAR50m (USD9.9m) to
ZAR250m (USD49.6m), while the amount for other countries
was increased from ZAR30m (USD6m) to ZAR50m.
I nvestment Code
South A f r i c a ’s export insurance scheme provides export e r s
with insurance facilities to cover normal commercial insolve n c y
and political or transfer risks that may prevent them fro m
receiving payment for their go o d s . The signing of bilateral
a g reements for the promotion and protection of inve s t m e n t
with nine countries are in the process of being nego t i a t e d .
South Africa is signatory to international investment pro t e c t i o n
a g reements and is a member of MIGA.
I nvestment Opport u n i t i e s
Because South Africa has been cut off from world markets fo r
some time, the country ’s re - e n t ry into the global arena has
opened up many opportunities for fo reign and South A f r i c a n
i nvestors alike.
The IDC has identified industries and sectors with a
c o m p a r a t i ve advantage, in terms of export performance and
c o m p e t i t i ve n e s s .
The best export-oriented industries as per revealed comparative
a d v a n t a g e, we re found to be:
* Food and related pro d u c t s :S u g a r s ,s t a rc h e s ,insulin and wheat
g l u t e n ,vegetables and fruit.
* Textiles and clothing:Textile we a r, woven fabrics of synthetic
f i b re s .
* Wo o d - related pro d u c t s :Wood and cork,chemical wood pulp,
p aper and articles there o f .
* C h e m i c a l s : Inorganic chemicals, fe rt i l i s e r s , p e t roleum jelly,
mineral waxe s .
* Non-metallic mineral pro d u c t s :Building and monumental stone.
* Basic metals: Basic iron and steel, fe rro - a l l oy s ,n o n - fe ro u s
basic metal pro d u c t s .
E x p o rt industries with the highest degree of penetration in
world markets are :
* Food and related pro d u c t s :C e reals and preparation there o f ,
b eve r a g e s .
* Textiles and clothing: M e n ’s suits and tro u s e r s ,fo o t we a r, t r ave l
go o d s ,h a n d b a g s .
* Wo o d - related pro d u c t s : Wood and cork manu f a c t u re s ,
f u r n i t u re and part s ,chemical wood pulp.
* C h e m i c a l s : Organic chemicals, fe rt i l i s e r s , p e t ro l e u m - re l a t e d
p ro d u c t s ,t y re s .
00 80