Sanchia Temkin
12 November 2009
Johannesburg — THE removal of some exchange control regulations will have advantageous tax-planning consequences for companies investing in Southern African Development Community (Sadc) countries.
Ernest Mazansky, a director at Werksmans Tax, said this week: "The removal of the restriction on South African companies investing into Sadc countries through third countries means that South African corporations can now establish more tax-efficient structures. This will improve the after-tax returns on their investments."
Finance Minister Pravin Gordhan announced in his medium-term budget policy statement in Parliament last month that exchange controls would be reformed to lower the cost of doing business in SA.
Included in the reforms are the relaxation of restrictions on outward investments. The limit for companies of R50m -- although this could sometimes be exceeded if a case could be made to the Reserve Bank -- has been extended to R500m.
Ann van den Berg, a director at PKF chartered accountants, said relaxing exchange control regulations aimed to remove red tape and reduce the cost of doing business.
Van den Berg said that, as far as offshore transactions were concerned, the average local individual and corporate entity were now able to operate with little restriction.
Mazansky said it was exchange control policy that where any South African company made an investment into any Sadc country, such investment had to be direct from SA or through another Sadc country.
Where these investments were not made directly, it became popular to route them instead through Mauritius, he said. Firstly, it was a low-tax offshore financial centre (where the tax rate was a maximum of 3%). Secondly, it had a number of double- tax agreements with African countries that were more favourable than SA's agreements with those countries, Mazansky said.
However, some Sadc countries had entered into agreements with non-Sadc states that were even more favourable but, because of the exchange control restriction against investing through non-Sadc countries, it was not possible for South Africans to benefit from the lower withholding taxes by investing through those countries, he said.
The removal of the restrictions on local companies investing into Sadc countries via third countries would be a tax advantage, said Mazansky.
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