Business income received by or accrued to a non-resident from carrying on a trade or business
within South Africa is taxable in South Africa. The taxability of the income may be affected by
a tax treaty.
Income derived from any business or trading activity carried on by a resident outside
South Africa will be subject to normal tax in South Africa. However, this may have the effect
that income derived by the resident may be subject to income tax in South Africa and in the
country where the trading activities are carried on (the source country). This situation will
normally be resolved through the application of a tax treaty concluded between the two
countries. Generally, profits will be taxed in the country of residence unless the business is
carried on in the other country through a permanent establishment. The term “permanent
establishment” will be defined in the tax treaty and generally means a fixed place of business
through which the business of the enterprise is wholly or partly carried on.
Tax consequences of doing business in a company
The holder of shares in a company and the company itself are separate taxable entities.
In addition, ownership of the company (ownership of the shares), and management of the dayto-day activities of the company are usually separate.
Companies (other than SBCs, micro businesses, companies mining for gold and long-term
insurance companies) pay tax on their taxable income at a flat rate of 28%. For the tax rates
applicable to the companies that are not paying tax at the flat rate of 28% see 2.14.6.
A company which is not a “resident” as defined in the Act, carrying on a trade within
South Africa, also pays tax at a flat rate of 28% on income derived from a source within
A “company” as defined in section 1(1) is a provisional taxpayer (see 2.4.6), unless it is
specifically excluded from the definition of “provisional taxpayer” in paragraph 1 of the
Controlled foreign companies (section 9D)
A CFC is any foreign company of which more than 50% of the total participation rights in that
foreign company are held, or more than 50% of the voting rights in that foreign company are
directly or indirectly exercisable, by one or more persons who are residents of South Africa,
other than headquarter companies. A CFC also includes any foreign company when the
financial results of that foreign company are reflected in the consolidated financial statements,
as contemplated in IFRS 10, of any company that is a resident, other than a headquarter
Residents are liable for income tax on their proportional share of the net income of a CFC
under section 9D except when a resident (together with any connected person in relation to
that resident), holds less than 10% of the participation rights in aggregate and may not
exercise at least 10% of the voting rights in that CFC.
The ratio of the net income to be determined for any one resident is the proportion that the
resident’s participation rights bears to all the participation rights in the CFC.
The net income calculation is performed in a CFC’s currency of financial reporting and the
result must be translated to rand by applying the average exchange rate for the year of
assessment during which the net income is included in the resident’s income.