African sunrise

South Africa is located at the southernmost tip of Africa and is bordered by Namibia, Botswana, Zimbabwe and Mozambique. It totally encloses Lesotho. With one of the most favourable climates and boasting ocean, mountains, the wine lands and the wildlife, South Africa is a tourist’s dream.

South Africans pride themselves on being a friendly and welcoming nation (also known as the ‘rainbow nation’) with nine provinces, 11 official languages (although for business English and Afrikaans are used the most) and a cosmopolitan of rich cultures. South Africa has a vast variety of natural resources and farmland products that are exported all over the world. It also has a well-developed legal, financial and service system. South Africa is a country full of positivity and hope.

Golden glow

South Africa is known as the economic powerhouse of Africa and in regard to manufacturing output, mineral production, electricity production, telecommunications use and financial flow, it is a leader, contributing almost 30 per cent of the continent’s GDP. In terms of platinum-group metals, gold, manganese and chrome, South Africa is the world’s leading producer, and is among the largest producers of low-grade coal, diamonds, titanium and uranium. Gold is one of South Africa’s biggest commodities and the fields are the richest ever found due to South Africa having produced more than half of the total global tonnage ever mined.

South Africa also has a diversified industrial and manufacturing economic base, with major contributions coming from the tourism and financial sectors. The mining sector, however, still ?remains the ultimate barometer of ?South Africa’s fortunes.

Black economic empowerment (BEE) is a central focus of government economic policy. The strategy, while at times highly sensitive, is vital in correcting severe social and economic imbalances created during the apartheid. A charter for each economic sector dictates percentage stakes that must be transferred into black ownership by given dates through legislation.

The Republic of South Africa is a multiparty and constitutional democracy with an independent reserve bank ?and judiciary.

The president is both head of government and state. The president, deputy president, speaker of the National Assembly and appointed cabinet ministers form the executive branch ?of the government.

The Constitution contains a Bill of Rights and is supreme law in South Africa. At national and provincial levels there are various advisory bodies drawn from traditional leaders. Government is carried out by three interconnected ?arms: executive, legislative and judicial. ?It is administered at three levels: ?national, provincial and local.

South Africa’s parliamentary system has two chambers. The first chamber ?is the National Assembly, which has 400 members. These members are elected by popular vote under a system of proportional representation to serve five-year terms. The second chamber is the National Council of Provinces, which has 90 members. These members also serve five-year terms.

South Africa’s judicial system is ?based on Roman Dutch and English common law. It operates through various court systems.

Dual approach

Apart from legislation, common law has developed through cases brought before the courts, the principles behind these decisions, the writings of the old Roman-Dutch writers, and certain aspects of English law. The judicial system is one whereby decisions of higher courts bind those of lower courts and parties have a right of appeal from lower courts to higher ones.

The South African legal system is split into the two branches of civil and criminal law. Civil law includes the ?laws of persons, families, obligations (including contract), torts, succession, mercantile matters, property and trusts. ?A system of specialised tribunals has ?been established to settle disputes, such ?as those involving employment issues. Tax matters are referred to the tax court, a court constituted by the provisions of the Income Tax Act.

The supreme court is the final ?court of appeal for matters not relating to the constitution and the constitutional court deals with matters relating to ?the constitution.

South Africa has independent watchdog organisations covering corruption, human rights, land ?claims and gender equality, and ?has a public protector.

The office of the independent and impartial ombudsman (commonly known as the public protector) was established in 1991. The public protector has important powers relating to investigation into the abuse of government power and maladministration. However, the Human Rights Commission is the body tasked with promoting the observance of, respect for and protection of fundamental human rights.

In South Africa a resident is taxed on his/her worldwide income. A resident is defined as a natural person who is ordinarily resident in South Africa or who is physically present in South Africa for a certain number of defined days, or company, corporation or trust that is incorporated, established, formed, or that has its place of effective management in South Africa.

A resident excludes a natural person who was previously regarded as a deemed resident if physically absent from South Africa for a continuous period of at least 330 days from the date of departure.

South Africa has capital gains tax, donations tax, estate duty, transaction taxes and secondary tax on companies and corporations (a withholding tax levied on companies or corporations that pay dividends to shareholders or members). There are withholding taxes on royalties to non-residents, but not on interest or dividends, and a tax on income earned by non-resident entertainers and sports persons. There is withholding tax on sale of immovable property held by non-residents.

Number crunching

Income tax is imposed on a resident’s worldwide income. Individuals and special trusts are taxed at a graduated rate to a maximum of 40 per cent. Companies and corporations are taxed at a rate of 28 per cent and trusts are taxed at a rate of 40 per cent.

Interest received by or accrued to a non-resident is tax exempt, provided that the individual is physically absent from South Africa for at least 183 days or at any time during that year carried on a business through a permanent establishment in South Africa. Interest received by or accrued to a non-resident company is tax exempt unless such a company carries on business through a permanent establishment in South Africa (such as branches of foreign companies). Dividends received by non-residents are tax exempt.

Royalties attract a final withholding tax of 12 per cent (subject to double-tax agreements). For payments of a royalty to a non-resident, residents need the approval of the Department of Trade and Industry and Exchange Control. Non-residents are taxed on South African source income.

Capital gains tax is imposed on a resident’s worldwide assets. Individuals and special trusts are taxed at a rate of ten per cent. Companies and corporations are taxed at a rate of 14 per cent and trusts are taxed at a rate ?of 20 per cent.

Any capital gain made on a disposal of a primary residence when the proceeds received do not exceed ZAR2m is excluded from capital gains tax. When the proceeds exceed ZAR2m the exclusion from capital gains tax is limited to ZAR1.5m.

By distributing capital gains to individual beneficiaries, the rate applicable to trusts may be reduced to that applicable to individuals. Capital gains tax that is triggered on disposal of an asset applies only to a non-resident’s immovable property or assets of a permanent establishment in South Africa.

Donations tax is levied at a rate of 20 per cent on the value of any property disposed of gratuitously by a South African resident or resident company or resident corporation. Exemptions include property disposed of under and in pursuance of any trust, donations by a natural person up to ZAR100,000 per annum and donations between spouses. Spouses include same-sex relationships and cohabiting couples. Estate duty is levied on estates at a rate of 20 per cent.

Exemptions include any bequest to a surviving spouse and the first ZAR3.5m of the estate. A surviving spouse can make use of any part of the R3.5m rebate not utilised by the first dying spouse.

Secondary tax on companies and corporations is levied at a rate of ten per cent on certain dividends declared by a company or corporation. Transaction taxes include securities duties, levied on the issue or registration of transfer of shares or members’ interest at a rate of 0.25 per cent, value added tax, levied at a rate of 14 per cent, and transfer duty, calculated on the market value, levied on the transfer of immovable property (the rate is calculated on a graduated scale, maximum rate of eight per cent).

Subtle difference

The UK tax system has similarities to South Africa. However, terminology differs, e.g. inheritance tax (IHT) in the UK is referred to as estate duty in South Africa. The various tax rates compared to South Africa also differ.

Although South Africa’s position is at the very bottom of the African continent, it is advantageous in terms of international business opportunities and it actually makes the country a very good trans-shipment point between the emerging markets of central and south America as well as the newly industrialised nations of south and ?far east Asia.

South Africa is also ideally placed for access to countries in the Southern African Customs Union (SACU), and the Southern African Development Community (SADC).

South Africa today is one of the most sophisticated and promising emerging markets globally with a top class judicial system. Its unique combination of a highly developed first-world economic infrastructure and an emergent market economy has given rise to a strong dynamic and entrepreneurial investment environment. n

 

Mervin Messias is an attorney and founder of Mervin Messias Attorneys. Attorney Jodene Cilliers assisted with this article

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