INVESTING IN SA
South Africa is a vibrant emerging market and the most industrialised economy in Africa. Learn more about South Africa and reasons you should be investing in SA.
International Trade Agreements: South Africa’s preferential market access agreements
Established in 1910, this is the oldest functioning customs union in the world. The latest SACU Agreement came into force in July 2004. In terms of Article 31 of the new agreement, South Africa and other members of SACU jointly negotiate preferential trade agreements with third parties. SACU members have also agreed to a targeted work programme in five areas, namely:
- regional industrialisation;
- review of the revenue-sharing formula to ensure a sustainable revenue sharing mechanism that promotes development;
- development of a trade facilitation programme to improve border efficiency;
- unified engagement in trade negotiations; and
- establishing common institutions such as a Tariff Board and the Tribunal within an agreed policy framework.
International Trade Agreements: South Africa’s preferential market access agreements
Implementation of the SADC Protocol on Trade began in 2000. The liberalisation of tariffs has taken place at different rates. In general, more developed SADC countries have reduced tariffs faster than other member states. SACU removed most tariffs in 2000, while middle-income countries have gradually reduced their tariffs each year between 2000 and 2008. In relation to the least-developed countries, tariff reductions have generally been introduced during the latter part of the phase-down period.
From January 2008 onwards, when SADC attained the status of a FTA, producers and consumers do not pay import tariffs on more than 85% of all trade in community goods in the initial 12 countries implementing the SADC Trade Protocol. When SADC attains the status of a fully-fledged FTA with almost all tariff lines will be traded duty-free.
Market integration in SADC is accompanied by cross-border infrastructural development (such as the spatial development initiatives) and sectoral co-operation that aims to build and diversify the region’s production structures.
International Trade Agreements: South Africa’s preferential market access agreements
This agreement came into force on 1 May 2004 after it was ratified by all EU member states. In terms of the Agreement, by 2010, the EU was expected to liberalise 95% of its duties on South African originating products. In turn, by 2012, South Africa undertook to liberalise 86% of its duties on EU originating products. It means that only a limited number of product lines are not as yet subject to any of the regimes of tariff phasedown under the Agreement. There is currently a review of the Agreement under way, which is aimed at broadening the scope of product coverage. This is taking place under the auspices of the Economic Partnership Agreement (EPA) negotiations between the SADC EPA configuration and the EC.
International Trade Agreements: South Africa’s preferential market access agreements
This FTA applies to trade relations between SACU and individual EFTA states covering trade in industrial goods (including fish and other marine products) and processed agricultural products.
The Agreement also provides for future non-binding engagements on issues such as intellectual property, investment, trade in services and government procurement. EFTA countries do not have a common agricultural policy and basic agricultural products were negotiated separately. Three Bilateral Agricultural Agreements were concluded between SACU and individual EFTA states, which form part of the main Agreement and came into force at the same time as the FTA. On the EFTA side tariffs on industrial goods were eliminated upon entry into force of the Agreement; i.e. all customs duties on imports of originating products from SACU have been abolished.
SACU shall progressively reduce customs on imports of originating products from the EFTA states. The tariff reduction schedules are set out on the assumption that the Agreement came into force on 1 January 2006 and are not affected by any delays in the actual date on which the FTA came into force.
International Trade Agreements: South Africa’s preferential market access agreements
Mozambique
This Agreement is a wide-ranging preferential arrangement regulating mine labour, railway and port matters and trade. A limited number of Mozambican goods receive tariff preference from South Africa, subject to quotas.
Zimbabwe
Consensus on a new trade Agreement was reached in August 1996. In terms of which tariff and quota levels on textile imports into South Africa will be lowered. The Agreement also extends to a large number of other products, certain quotas for agricultural products are in place.
International Trade Agreements: South Africa’s preferential market access agreements
Established in 1910, this is the oldest functioning customs union in the world. The latest SACU Agreement came into force in July 2004. In terms of Article 31 of the new agreement, South Africa and other members of SACU jointly negotiate preferential trade agreements with third parties. SACU members have also agreed to a targeted work programme in five areas, namely:
- regional industrialisation;
- review of the revenue-sharing formula to ensure a sustainable revenue sharing mechanism that promotes development;
- development of a trade facilitation programme to improve border efficiency;
- unified engagement in trade negotiations; and
- establishing common institutions such as a Tariff Board and the Tribunal within an agreed policy framework.
International Trade Agreements: South Africa’s preferential market access agreements
Implementation of the SADC Protocol on Trade began in 2000. The liberalisation of tariffs has taken place at different rates. In general, more developed SADC countries have reduced tariffs faster than other member states. SACU removed most tariffs in 2000, while middle-income countries have gradually reduced their tariffs each year between 2000 and 2008. In relation to the least-developed countries, tariff reductions have generally been introduced during the latter part of the phase-down period.
From January 2008 onwards, when SADC attained the status of a FTA, producers and consumers do not pay import tariffs on more than 85% of all trade in community goods in the initial 12 countries implementing the SADC Trade Protocol. When SADC attains the status of a fully-fledged FTA with almost all tariff lines will be traded duty-free.
Market integration in SADC is accompanied by cross-border infrastructural development (such as the spatial development initiatives) and sectoral co-operation that aims to build and diversify the region’s production structures.
International Trade Agreements: South Africa’s preferential market access agreements
This agreement came into force on 1 May 2004 after it was ratified by all EU member states. In terms of the Agreement, by 2010, the EU was expected to liberalise 95% of its duties on South African originating products. In turn, by 2012, South Africa undertook to liberalise 86% of its duties on EU originating products. It means that only a limited number of product lines are not as yet subject to any of the regimes of tariff phasedown under the Agreement. There is currently a review of the Agreement under way, which is aimed at broadening the scope of product coverage. This is taking place under the auspices of the Economic Partnership Agreement (EPA) negotiations between the SADC EPA configuration and the EC.
International Trade Agreements: South Africa’s preferential market access agreements
This FTA applies to trade relations between SACU and individual EFTA states covering trade in industrial goods (including fish and other marine products) and processed agricultural products.
The Agreement also provides for future non-binding engagements on issues such as intellectual property, investment, trade in services and government procurement. EFTA countries do not have a common agricultural policy and basic agricultural products were negotiated separately. Three Bilateral Agricultural Agreements were concluded between SACU and individual EFTA states, which form part of the main Agreement and came into force at the same time as the FTA. On the EFTA side tariffs on industrial goods were eliminated upon entry into force of the Agreement; i.e. all customs duties on imports of originating products from SACU have been abolished.
SACU shall progressively reduce customs on imports of originating products from the EFTA states. The tariff reduction schedules are set out on the assumption that the Agreement came into force on 1 January 2006 and are not affected by any delays in the actual date on which the FTA came into force.
International Trade Agreements: South Africa’s preferential market access agreements
Mozambique
This Agreement is a wide-ranging preferential arrangement regulating mine labour, railway and port matters and trade. A limited number of Mozambican goods receive tariff preference from South Africa, subject to quotas.
Zimbabwe
Consensus on a new trade Agreement was reached in August 1996. In terms of which tariff and quota levels on textile imports into South Africa will be lowered. The Agreement also extends to a large number of other products, certain quotas for agricultural products are in place.
International Trade Agreements: Current trade negotiations
South Africa is a strong proponent of the principles of multilateralism, transparency and inclusiveness. We regard multilateralism as a necessary intergovernmental response to manage the challenges of globalisation and deepening interdependence among economies and societies around the world.
The current playing field in world trade is still highly uneven and biased against developing countries’ interests. In the WTO, South Africa therefore remains committed to concluding a Development Round based on the mandate agreed to in Doha. South Africa has built alliances with other like-minded developing countries to resist an outcome that is unfair, un-mandated and anti-development.
International Trade Agreements: Current trade negotiations
In 2009, the Members States of SADC, the EAC and COMESA initiated a wide-ranging initiative for integration that will be built on market integration, industrial development and infrastructure.
Once concluded, the T-FTA will combine the markets of 26 countries with a population of nearly 600 million people and a combined GDP of US$1 trillion, providing the market scale that could launch a sizeable part of the continent onto a new developmental trajectory. Implementation of the T-FTA is scheduled for 2015.
The T-FTA will form the basis for an Africa-wide FTA, which is expected to create a market of US$2.6 trillion. This will address the challenge of small and fragmented economies in Africa. A larger, more integrated and growing market would enhance the interest of foreign investors in Africa and provide a basis for enhanced intra-African trade. This envisaged Continental FTA (C-FTA) will therefore widen and build on the integration initiatives already under way.
International Trade Agreements: Agreements with the USA
AGOA extended the duty-free treatment under the US’s Generalised System of Preference (GSP) programme. AGOA eliminated most of the limitations of the GSP programme for sub-Saharan African countries, and expanded the product coverage of the GSP programme exclusively for products in sub-Saharan Africa. It has also made way for duty-free and quota-free access to the US market for apparel manufactured in sub-Saharan countries, of which the fabric, yarn and thread were of US origin. AGOA is set to expire in 2015.
International Trade Agreements: Agreements with the USA
Trade, Investment, Development and Cooperation Agreement (TIDCA)
The TIDCA between SACU and the US is a co-operative framework agreement that makes provision for the two parties to negotiate and sign agreements relating to sanitary and phyto-sanitary measures (SPS), customs cooperation, and technical barriers to trade measures (TBT). It also establishes a forum of engagement between the two parties on any matters of mutual interest, including capacity-building and trade and investment promotion.
Trade and Investment Framework Agreement (TIFA)
TIFA is a bilateral agreement between South Africa and the US that was signed in 1999, but was dormant until a decision to revive it was taken in 2010. The Agreement provides a bilateral forum for the two countries to address issues of interest including AGOA, TIDCA, trade and investment promotion, non-tariff barriers, SPS, infrastructure and others. It is the main forum for bilateral-engagement with the US on all trade-and-investment related issues.
BRICS refers to the economic alliance that includes Brazil, Russia, India, China and South Africa. South Africa’s membership of the BRICS group of major emerging economies (on 13 April 2011) is a boost to the country’s brand as a serious economic player and puts South Africa on the centre stage of global change.
Membership gives Africa a stronger voice, not only within BRICS, but also across all international platforms in which the BRICS countries are individually represented
Current rates of taxation
Current central tax | Applicable range | Rate |
Company tax (non-mining) | 28% | |
Dividend tax | 15% | |
Micro businesses rate for entities with an annual turnover of </= R1m (elective provision and conditions apply) | R0 – R150 000 | 0% |
R150 001 – R300 000 | 1% of amount > R150 000 | |
R300 001 – R500 000 | R1 500 + 2% of amount > R300 000 | |
R500 001 – R750 000 | R5 500 + 4% | |
R750 001 + | R15 500 +6% | |
Small business corporation rate for entities with annual turnover </= R14m | R0 – R67 111 | 0% |
R67 112 – R365 000 | 7% of amount > R67 111 | |
R365 001 – R550 000 | R20 852 + 21% | |
R550 001 + | R50 702 + 28% | |
Branch profit tax | 28% | |
Maximum individual tax rate | 40% |
| Gross income |
|
| Less: exempt income Less: allowable deductions Less: other tax allowances | An example of this is income from government incentives Non-capital expenses incurred in South Africa in the production of the taxpayer’s income e.g. Capital allowances on Plant and Machinery |
| Plus: taxable capital gain | Refer to notes on capital gains tax |
| Equals: taxable income | Taxed at the rate of tax applicable to the entity |
The principal source of direct tax revenue in South Africa is income tax. South Africa has a residence-based system of taxation:
- South African residents are therefore taxed on their worldwide income, subject to a number of exceptions.
- Non-residents are taxed on income earned from a South African source.
- The question of residency needs to be addressed in the light of any double taxation agreements, which can provide relief
- Any company, which is either incorporated in, or effectively managed from South Africa, is deemed to be a South African resident for tax purposes.
- Domestic companies are taxed at a flat rate of 28%. From years of assessment commencing on or after 1 April 2012, branches of foreign companies which have their effective management outside South Africa will also be taxed at a rate of 28% (prior to this date they were subject to taxation on South African-sourced profits at a rate of 33%). Trusts (other than special trusts) are taxed at a rate of 40%.
Residents of South Africa are liable for Capital Gains Tax (CGT) on capital gains made on the disposal of their worldwide capital assets.
The inclusion rate for capital gains is 33.3% (25% prior to 1 March 2012) in respect of individuals and special trusts, and 66.6% (50% prior to 1 March 2012) in respect of companies and other trusts. The maximum effective tax rate is therefore 13.3% (previously, 10%) for individuals, 18.6% (previously, 14%) for companies and 26.7% for trusts.
Exposure to CGT for non-residents is largely limited to disposals of South African real estate or assets of a branch business.
Where a change of residence status is brought about, that person/company will need to establish the market value of their assets at the date they are deemed to become South African residents for tax purposes. This market value becomes the base cost which is used to calculate the capital gains upon disposal of capital assets in future. The subsequent cessation as a South African tax resident, may result in a deemed disposal for CGT.
The principal source of indirect taxation revenue in South Africa is VAT. The standard rate of VAT is 14%.
Exports, certain foodstuffs and other supplies are zero-rated, and certain supplies are exempt (mainly certain financial services, residential accommodation and public transport). Any person that carries on an “enterprise” in South Africa for VAT purposes and that makes taxable supplies above a certain threshold is obliged to register as a VAT vendor.
Investment in South Africa, both by a branch or through a subsidiary, will constitute an “enterprise” and will therefore require VAT registration. VAT (output tax) is levied at 14% on the value of any supplies made by a vendor, unless such supplies qualify for a zero rating (for example, supplies physically rendered outside of South Africa are subject to VAT at the zero rate) or are exempt from VAT. Any VAT charged to the vendor by suppliers, as well as VAT levied on the importation of goods, will generally be deductible as an input tax credit by the vendor.
The new dividend withholding tax is levied at a rate of 15% on dividends declared by domestic companies and shares of non-resident companies that are listed on the JSE. (The 15% rate may be reduced under an appropriate double tax agreement).
Dividend payments to the Government, and various other bodies (defined in the act) will be exempt, and foreign persons will be eligible for tax treaty relief. Exempt shareholders will have to certify their exemption status.
In respect of in-specie dividends, the distributing company (not the shareholder) will bear the liability, although it will be subject to similar exemptions and treaty relief as cash dividends. The major implication is likely to be administrative.
The “dividend” definition has been broadened, which essentially means that value-transfers (understood as “deemed dividends”) may still be taxed.
A dividend will be deemed to be paid on the earlier of the date on which the dividend is paid or becomes payable by the company that declared the dividend.
Amounts received or accrued in respect of government grants are effectively exempted from tax in accordance with the Income Tax Act – S12P: Exemption of amounts received or accrued in respect of government grants
