Corporate Tax 2025 Comparisons

Businesses typically adopt a corporate form, a trading trust or a partnership.

• Partnerships are tax transparent entities. The individual partners contribute to a business or undertaking carried on in common, with the main goal of generating revenue. Each partner is taxed on their respective share of the partnership income and any income from other sources.
• Trusts may also function as transparent entities. In terms of section 25B(1) of the Income Tax Act, 58 of 1962 (the “Act”), any amount (other than one of a capital nature not included in gross income, or one received on termination and constituting a retirement lump sum payment) received by or accrued to or in favour of the trustee of a trust, whether testamentary or inter vivos, which has been derived for the immediate or future benefit of an “ascertained beneficiary” who enjoys a vested right to the income, is deemed to be an amount which has accrued to the beneficiary and not to the trust.
• Collective investment schemes (CIS) may be transparent to the extent that the income of the CIS (other than amounts of a capital nature) has been distributed to the holders of participatory interests within 12 months of accrual or within 12 months of receipt in the case of interest, as such income will be deemed to accrue to the holder of a participatory interest.

South Africa taxes residents on their world-wide income and non-residents on income from a source in South Africa.

An entity (other than a natural person) is resident in South Africa if it is incorporated, established, or formed in South Africa, or if its place of effective management is in South Africa, provided that it is not deemed to be exclusively resident in another country in terms of a double tax agreement (DTA).

Resident companies and permanent establishments of non-resident companies are subject to corporate income tax at the rate of 27% and to capital gains tax (CGT) at an effective CGT rate of 21.6%.

Small business corporations (ie, corporates with annual gross income which does not exceed ZAR20 million and which meets other qualifying requirements) are taxed on a sliding scale from 0% to 27% depending on the level of taxable income.

A formula is applied to taxable income from gold mining operations which reduces or increases the normal tax rate in accordance with the relationship between taxable income derived from mining and gross mining revenue.

Long term insurances companies are required to be split into separate funds, which are taxed separately, either at 0%, 27% or 30%.

Trusts are currently taxed at an income tax rate of 45% and an effective CGT rate of 36%.

“Taxable income” is the aggregate of the amount remaining after deducting from the “income” (which excludes exempt income) all amounts allowed to be deducted or set off in terms of the Act.

Section 11D of the Act allows:

• a deduction equal to 150% of expenditure incurred directly for research & development; and
• an accelerated depreciation deduction (that is, 50:30:20) for capital expenditure incurred on machinery or plant used for R&D.

Other special incentives exist, as set out below.

• Various incentives are available to operations in special economic zones, including a reduced corporate income tax rate of 15%, being treated as a customs-controlled area with duty-free and VAT privileges and accelerated depreciation allowances on capital structures.
• Grants are available to public-private partnerships under the Support Programme for Industrial Innovation as a subsidy towards the cost of developing new products or processes to reduce infrastructure backlogs in both urban and rural areas.
• The Manufacturing Competitive Enhancement Programme of the Department of Trade and Industry provides incentives in the manufacturing sector along with grants of up to ZAR50 million.
• A 50:30:20% accelerated depreciation allowance is available for investments made in energy-efficient equipment for the production of renewable energy and biofuels. Where such equipment is used in the generation of electricity from photovoltaic solar power plants with a generating capacity of not more than 1 MW, the allowance is enhanced to 100% of cost in the first year.
• A headquarter company regime exists, aimed at intermediary foreign investment or finance companies incorporated in South Africa.
• Lastly, there is a shipping tax regime, which entitles a qualifying company to (i) exemptions from income tax, CGT, dividends tax, and withholding tax on interest; and (ii) apply its functional currency as the local currency for tax calculation purposes.

The basic rules on loss relief are set out below.

• Losses on revenue account may generally be carried forward indefinitely and set off against income earned in the future, provided that the taxpayer carries on a trade in each year of assessment.
• The balance of the loss on revenue account that may be set off against income is limited to the greater of ZAR1 million or 80% of taxable income in that year of assessment.
• The unutilised balance may be carried forward to the subsequent year of assessment.
• Restriction applies to losses created in carrying on a trade outside South African or to losses created in a partnership.
• Capital losses are ring-fenced and may only be set off against capital gains and not against income earned on revenue account. Unutilised capital losses may be carried forward to the subsequent year of assessment, irrespective of the trading status of the taxpayer. Restrictions apply to connected party losses.

Subject to what is set out below, interest expenditure incurred in the production of non-exempt income in the carrying on of trade is generally deductible.

Specific rules apply to determine the amount of interest deduction and the timing thereof.

There are no separate thin capitalisation rules applicable in South Africa.

Thin capitalisation is to be dealt with as part of the general arm’s length-based transfer pricing requirements. The deduction of interest incurred in respect of debt used to fund the acquisition of companies is in certain instances disallowed.

Interest limitation rules apply to certain local and cross-border debts. Where applicable, these will result in deferring the deduction of excessive interest.

Group taxation is not allowed in South Africa. Notwithstanding this, corporate roll over relief is available in defined circumstances in respect of transactions between group companies provided certain requirements are met.

A capital gain or loss arises upon the “disposal” of an asset and is calculated as the difference between the “base cost” and “proceeds” received by or accrued to a company on such disposal.

CGT is levied at the applicable corporate tax rate on 80% of the aggregated net capital gains realised by a resident company during a tax year, resulting in an effective CGT rate of 21.6%.

Non-residents are only subject to CGT on the disposal of assets which either (i) are effectively connected to a South African permanent establishment of the non-resident; or (ii) constitute immovable property situated in South Africa, or any right to or interest in immovable property. An interest in immovable property includes the disposal of equity shares in any company (resident or non-resident) where more than 80% of the value of the equity shares being disposed of is attributable, directly or indirectly, to South African immovable property or rights to this, and more than 20% of the equity shares are held connected parties.

Other taxes that may be payable by an incorporated business include the following.

• A transfer duty is imposed under the Transfer Duty Act on the acquisition of real property (ie, land and buildings thereon) and certain interests in land. The duty is imposed according to a sliding scale with reference to the value of the property transferred.
• Securities transfer tax is imposed on any transfer of either (i) a listed or unlisted security of a South African incorporated company, or (ii) a South African stock exchange listed security of a foreign incorporated company. The applicable rate is 0.25% on the taxable amount, which is generally the higher of the consideration given for the transfer of a security or the market value of the security.
• Generally, value added tax (VAT) is levied at 15% on the supply of goods and services in South Africa and on the importation of goods and services.        

Skills Development Levy (SDL)

• Skills Development Levy (SDL) is payable by employers at a rate of 1% of remuneration.
• Employers paying annual remuneration of less than or equal to ZAR500,000 are exempt from paying SDL.

Unemployment Insurance Fund (UIF)

• Both employees and employers must each contribute 1% of the employee’s remuneration (ie, 2% in total) to the unemployment insurance fund (UIF), based on a maximum monthly remuneration of ZAR17,712 (ie, maximum monthly contribution is ZAR354.24), for purposes of insuring employees against the loss of earnings due to termination of employment, illness, and maternity leave.

Carbon Tax

• Carbon tax is imposed on entities that operate emissions generation facilities at a combined installed or production capacity equal to or above the carbon tax threshold for the activity or sector in which the taxpayer is operating. The emissions that are subject to carbon tax are determined in accordance with either an approved reporting methodology of the Department of Forestry, Fisheries and the Environment, or the prescribed formulas in terms of the Carbon Tax Act, 2019.
• Persons conducting an activity or activities in South Africa resulting in greenhouse gas emissions above the threshold must license each of their emissions generation facilities with the South African Revenue Service (SARS) as customs and excise manufacturing warehouses for environmental levy purposes.
• For the period 1 January 2024 to 31 December 2024, the carbon tax rate is ZAR190 (ZAR159 in 2023) per tonne of carbon dioxide equivalent emissions.
• A taxpayer may reduce its greenhouse gas emissions by utilising any allowances and deductions to which the taxpayer is entitled.

Closely held local business either operate in a corporate form or as trusts.

The income tax rates applicable to resident individuals range from 18% to 45% on a sliding scale as opposed to the corporate rate of 27%. “Personal service providers,” as defined in the Act (which may be trust or companies), are regarded as employees, and employee tax must be withheld from payments made to them. 

There is no applicable information in this jurisdiction.

Dividends tax is levied at a rate of 20% in respect of dividends received by individuals from South African companies.

See 6.7 Taxation on the Gain on the Sale of Shares in Non-Local Affiliates for the treatment of a gain on the sale of shares.

See 3.4 Sales of Shares by Individuals in Closely Held Corporations.

Withholding Tax Rates

For non-residents:

• branch profits – not applicable;
• cash dividends – 20%;
• interest – 15%; and
• royalties – 15%.

For residents:

• cash dividends – 20% (individuals); and
• resident companies – exempt from withholding tax on dividends.

Dividends that constitute the distribution of an asset in specie are subject to dividend tax at the rate of 20% in the hands of the company declaring the dividend. Certain exemptions may apply.

South Africa has Tax Treaties in force with: Algeria, Australia, Austria, Belarus, Belgium, Botswana, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Croatia, Cyprus, Czechia, Democratic Republic of the Congo, Denmark, Egypt, Eswatini, Ethiopia, Finland, France, Germany, Ghana, Greece, Grenada, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kenya, Kuwait, Lesotho, Luxembourg, Malawi, Malaysia, Malta, Mauritius, Mexico, Mozambique, Namibia, the Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Republic of Korea, Romania, Russia, Rwanda, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Tunisia, Türkiye, Uganda, Ukraine, the United Arab Emirates, the United Kingdom, the United States, Zambia, and Zimbabwe.

South Africa signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which entered into force in South Africa on 1 January 2023. At present, South Africa has listed 76 DTAs under its MLI Position, of which 50 of the 76 jurisdictions have ratified the MLI.

Local authorities will challenge the tax residence of the entity in a treaty country if there are not sufficient substance in the entity.

Cross-border transactions between “connected persons” or “associated enterprises” must be entered into on an arm’s length basis.

The connected person test is based on shareholding and the minimum requirement is a shareholding of at least 20% of the equity shares or voting rights. Companies managed or controlled by (i) any person who is a connected person of the company or (ii) any connected person of the person in (i) are also connected.

An “associated enterprise” means an associated enterprise as contemplated in Article 9 of the Model Tax Convention on Income and on Capital of the OECD.

Limited risk distribution arrangements are occasionally challenged but can be defended through sufficient functional analysis/characterisation of the local entity.

South Africa does not officially endorse the guidance on low value-adding intra-group services and the simplified approach thereto. 

South Africa’s record in resolving transfer pricing dispute through MAPS is poor. It appears that SARS is generally reluctant to enter into MAPS.

While compensating adjustments have been allowed in the past, there is a sense that SARS is increasing reluctant to make such adjustments.

Local branches of non-local corporations are taxed at the same corporate tax rate as local subsidiaries. However, local subsidiaries may be subject to dividend tax in respect of distribution of dividends which constitute the distribution of an asset in specie. There is no branch profit tax. 

Non-residents are only subject to CGT if the shares in a local corporation (i) are effectively connected to a South African permanent establishment of the non-resident in South Africa; or (ii) constitute a right to or interest in immovable property. An interest in immovable property includes equity shares in any company (resident or non-resident) where more than 80% of the value of the equity shares is attributable, directly or indirectly, to South African immovable property or rights to this, and more than 20% of the equity shares are held by the non-resident together with connected parties. Treaty relief may in some limited instances apply.

Degrouping provisions apply to certain of the intra group roll over relief provisions. If the foreign company is a controlled foreign company of a South African resident there may be tax implications if the foreign shareholding is disposed of.

South African has incorporated the GLOBE rules.

Generally, management and administrative expenses may only be deducted provided the requirements of the general deduction formula are met. The general deduction formula is contained in Section 11(a) read with Section 23(g) of the Act. In order to qualify for a deduction, the following requirements must be met by the taxpayer:

• the expenditure must have been actually incurred;
• it must be laid out or expended for the purposes of trade;
• it must be incurred in the production of income; and
• it must not be of a capital nature.

See 2.5 Imposed Limits on Deduction of Interest and 4.4 Transfer Pricing Issues.

Residents are taxed on their worldwide income.

Any person who constitutes a “resident” is required to include in its “gross income” any amount which is received by or accrues to such person which is not of a capital nature (including foreign income).

See 6.1 Foreign Income of Local Corporations.

A domestic participation exemption applies to foreign dividends (as defined) if the local company holds 10% or more of the equity shares and votes in the foreign subsidiary. However, the exemption does not apply if the income is deductible in South Africa and not subject to tax in South Africa in the hands of the declaring company.

See 4.4 Transfer Pricing Issues.

South Africa has complex controlled foreign company (CFC) rules. A non-local branch will not qualify as a CFC but is regarded as part of the same taxpayer as its head office.

SARS may question the tax residence of non-local affiliates if they do not have sufficient substance.

The disposal of shares in non-resident companies may be subject to income tax or CGT. If CGT applies, a participation exemption exists if 10% or more of the equity shares and votes have been held for at least 18 months and the share are sold to an unrelated non-resident which is not a CFC of a South African resident.

All transactions are subject to the general anti-avoidance rules (GAAR) contained in the Act. A transaction will fall foul of the GAAR if it gives rise to a tax benefit, its sole or main purpose is to derive a tax benefit, and it would not normally be employed for bona fide business purposes, lacks commercial substance, or creates rights and obligations that would not normally be created between persons dealing at arm’s length.

A “tax benefit” includes any avoidance, postponement or reduction of any liability for tax, duty or levy imposed by the Act or by any other Act administered by the Commissioner for the South African Revenue Service.

Companies are required to be audited on an annual basis.

South Africa is a member of the OECD’s Inclusive Framework on BEPS.

In particular, South Africa:

• is a signatory to the MLI, which it ratified in 2022);
• has enacted domestic regulations to regulate transfer pricing documentation requirements similar to what is set out in Chapter V of the OECD’s 2017 Transfer Pricing Guidelines (ie, BEPS Action 13); and
• has introduced provisions limiting interest deductions or exemptions where the income is not subject to tax in South Africa. 

Draft legislation has been published on the imposition of a global minimum tax (determined per the OECD GloBE Model Rules, Commentary and Administrative Guidance) and a domestic minimum tax, both levied at a rate of 15%, on undertaxed profits of MNE Groups.

See 9.1 Recommended Changes and 9.2 Government Attitudes.

There is no applicable information in this jurisdiction.

Although the international headquarter company regime is aimed at positioning South Africa as a favourable jurisdiction to invest into Africa, its application is limited. While withholding tax relief is provided, entities are still subject to the corporate tax rate of 27%.

In the authors՚ view, hybrid instruments are adequately regulated under Sections 8E and 8F of the Act.

See 2.5 Imposed Limits on Deduction of Interest.

South Africa has a well-developed, sophisticated and comprehensive CFC regime.

South Africa always had general anti-avoidance rules, which SARS often seek to apply.

South Africa’s transfer pricing rules have always followed the OECD rules. 

The authors are in favour of country-by-country reporting.

South Africa has not yet taken any specific measures to tax the digital economy.

See 9.12 Taxation of Digital Economy Businesses.

South Africa levies a withholding tax on non-residents in respect of amounts received or accrued in relation to intellectual property (IP) from a South African source. A payment made by a South African resident would be regarded as being from a South African source irrespective where the IP has been developed.

In addition, if South African companies are paying a royalty in respect of the use of the IP of a non-resident party, their tax deductions may be limited. This applies to licences for so-called “tainted IP”. In this regard, the Act contains anti-avoidance provisions which target IP sale-and-leaseback arrangements where certain parties are located outside the tax net. IP will be considered “tainted” where South African-developed IP is sold to a non-resident or tax exempt entity and is then licensed back to the South African creator or other South African end users, who pay licence fees that are claimed as tax deductions.