Gazetted on Tuesday, 24 December 2024 and effective from Monday, 1 January 2024, the Act significantly alters the landscape of corporate income tax for MNEs in South Africa, impacting their tax liabilities from the start of the year.
The key aspect of the Act is that – in addition to South Africa’s current Corporate Income Tax rate of 27% for both resident and non-resident companies (for tax years ending on or after 31 March 2024) – it introduces a “Top-up Tax” for multinational enterprise groups with global turnovers exceeding €750m.
To this end, it focuses on “Domestic Constituent Entities,” which are branches or subsidiaries of multinational companies based in South Africa and on “Domestic Joint Ventures,” – joint ventures based in South Africa.
If an MNE’s effective tax rate falls below 15%, it will be liable for additional taxes to meet this minimum threshold. This means that if a multinational company has a low tax rate in South Africa but its global tax rate falls below 15%, it could still be required to pay the Top-up Tax.
Ramaphosa has cited these measures as being designed to prevent profit shifting to low-tax jurisdictions and to promote fairer tax competition among nations.
Global tax alignment
His latest strategy signals South Africa’s commitment to closely following the GloBE (Global Anti-Base Erosion) Model Rules, which were agreed upon by the Organisation for Economic Co-operation and Development and G20 in October 2021.
This, even as the framework of the OECD’s global corporate tax deal has yet to be signed off in the absence of full international implementation.
The OECD’s global corporate tax deal proposes a 15% minimum corporate tax rate for multinational enterprises (MNEs).
The OECD deal was due to begin rolling out in 2023.
Transition year guidance
Meanwhile, to allow for the adjustment to SA’s Global Minimum Tax Act, Ramaphosa has factored in a “Transition Year” allowing MNEs time to adjust their tax structures and comply with the GloBE rules without facing immediate liabilities.
MNEs operating in South Africa are advised to assess their global effective tax rate, understand how the Top-up Tax is calculated, and prepare to adjust their tax structures to comply with the new legislation.
They can reference both the Global Minimum Tax Act which outlines the Top-up Tax calculation and liability, and familiarise themselves with the details of reporting and payment as provided in the Global Minimum Tax Bill.
