National Treasury has published its annual draft tax law amendments for public comment. The amendments are significant and will have a major impact on taxpayers in South Africa. Here are seven key changes to be aware of:

  • Foreign employers will be required to register for and withhold Pay-As-You-Earn (PAYE) from employee remuneration. This significant change will make it more difficult for foreign employers to avoid paying taxes in South Africa. Previously, foreign employers were only required to register for PAYE if they had a permanent establishment in South Africa. This change will mean that all foreign employers who pay employees in South Africa must register for PAYE and withhold tax from employees’ salaries regardless of whether they have a permanent establishment here.
  • Low-interest foreign currency loans made by connected persons to trusts will now be subject to donations tax. This change will make it more expensive for trusts to borrow money from connected persons, and will discourage tax avoidance schemes. Connected persons are individuals or entities that are related to each other in some way, such as family members or business partners. Low-interest foreign currency loans made by connected persons to trusts have been used as a tax avoidance scheme in the past. Under this scheme, a trust would borrow money from a connected person at a very low interest rate. The trust would then use the money to invest in assets that generate income, such as property or shares. The trust would then distribute the income from the assets to its beneficiaries, who would be taxed at a lower rate than the trust would have been taxed if it had borrowed the money at a market rate of interest. The new change will make this scheme less attractive, as the trust will now be required to pay donations tax on the low-interest loan.
  • Income distributions from South African trusts to non-resident beneficiaries will now be subject to income tax in the trust’s hands. This change will make it more difficult for trusts to avoid paying tax on income that is distributed to non-resident beneficiaries. Previously, income distributions from trusts to non-resident beneficiaries were only subject to tax in the hands of the beneficiaries if the beneficiaries were tax residents of a country with which South Africa has a double tax treaty. The new change will mean that income distributions from trusts to non-resident beneficiaries will be subject to tax in the trust’s hands, regardless of the beneficiary’s tax residency status.
  • The definition of “beneficial owner” will be included in the Tax Administration Act. This will make it easier for SARS to identify and track the beneficial owners of entities, which will help to combat tax evasion and money laundering. The beneficial owner of an entity is the person who ultimately owns or controls the entity, regardless of whether they are named on the entity’s registration documents. The new definition of beneficial owner will be based on the definition that is used by the Financial Action Task Force (FATF), an international organization that sets standards for combating money laundering and terrorist financing.
  • The inter-organisational sharing of information has been extended to include more organisations. This will make it easier for SARS to collect information from taxpayers and to identify non-compliance. The organisations that will now be required to share information with SARS include the Companies and Intellectual Property Commission (CIPC), the Directorate of Non-Profit Organisations and the Master of the High Court.

These are just some of the key changes that have been proposed in the draft tax law amendments. Taxpayers should carefully consider these changes and take steps to comply with the new requirements.

If you have any questions about the proposed changes, you should consult with one of our tax advisors at the Business Boutique.

In addition to the key changes outlined above, there are a number of other changes that have been proposed in the draft tax law amendments. These changes include:

  • Increased penalties for non-compliance. The penalties for non-compliance with tax laws are being increased. This is intended to deter taxpayers from breaking the law.
  • New compliance measures. SARS is introducing new compliance measures, such as risk-based audits and increased data matching. These measures are intended to improve compliance with tax laws.
  • Changes to the tax rates. The tax rates for some income brackets are being increased. This is intended to raise more revenue for the government.

The draft tax law amendments are still in the public comment phase. Taxpayers and interested parties can submit their comments to SARS until August 15, 2023. SARS will then consider the comments before finalising the amendments. The amendments are expected to be implemented for tax periods ending February 2024.