South Africa’s National Treasury proposes interest deduction and loss carryforward changes

Overview

South Africa’s Finance Minister on February 26, conveyed National Treasury’s proposed amendments to the South African Income Tax Act, No. 58 of 1962 (ITA) during the annual Budget Speech. Two key proposals with potential impacts to multinational enterprises with South African operations are amendments to assessed loss carryforwards by South African companies and interest deduction limitations.

Takeaway

The proposed changes to the assessed loss carryforward rules would result in a tax on at least 20% on taxable income. MNEs that have current or future assessed losses should evaluate the impact of the changes. 

MNEs that have outbound debt to their South African subsidiaries and stand-alone domestic entities should consider the impact of the proposed interest deduction limitation amendments on a potential resulting funding structure.