SA Budget 2012 - Ernst & Young - South Africa

Tax residence

In terms of existing tax residence rules, a foreign company is potentially considered as tax resident in South Africa if the company is effectively managed in South Africa. Going forward, it is proposed that the effective management test applies only where the foreign tax burden of the offshore company is broadly equivalent to the South African tax burden which would otherwise arise if the company was tax resident in South Africa. It appears that the anti avoidance nature of the effective management test has been recognised.

Investment funds managed by South Africans are currently also at risk of being considered as tax resident in South Africa, thereby potentially exposing the entire fund to South African taxes. It has been proposed that all foreign investment funds will be excluded from the effective management test. The idea is to retain and encourage asset management business in South Africa.