Since the declaration of South Africa as the Gateway to Africa in 2010 by National Treasury,
various changes have been made to South African legislation to make South Africa more
attractive to foreign investors looking to expand their operations into Africa. The headquarter
company regime was introduced with the purpose to provide a base from which these
investments may be managed.
From a tax perspective this regime eliminates or reduces specific taxes or rates of taxes for
companies who elect to be classified as headquarter companies, provided that certain
requirements are met. These requirements refer specifically to investments in qualifying foreign
companies. The reference to foreign companies inevitably requires that the resident definition
be considered.
In South Africa residence of a person other than a natural person is the place where the
company is incorporated, formed or established or the place of effective management which is a
term subject to various interpretations. Regardless of the differences, all the interpretations refer
to a senior level of management. Foreign incorporated companies with their place of effective
management in South Africa are excluded from the definition should they qualify as controlled
foreign companies with foreign business establishments subject to a high level of tax if the place
of effective management is disregarded.
The lack of skills in African countries as a product of shortfalls in the quality of education result
in challenges to establish appropriately skilled management teams in these countries. When a
centralised management team is set up at the headquarter company in South Africa the African
subsidiaries risk being resident in South Africa and therefore the structure would not qualify for
the benefits of the headquarter company regime.
Further challenges arise when the exclusion to the resident definition is applied as shares held
by a headquarter company are disregarded when the controlled foreign company status of the
subsidiaries are determined. Therefore it is recommended that the headquarter company
legislation be changed to correspond with successful regimes such as the Luxembourg and the
Netherlands in that it does not only apply to foreign investment. It is further recommend that the
resident definition be changed to exclude from the place of effective management test group
structures that would comply with section 9I should the test be disregarded. / MCom (South African and International Tax), North-West University, Potchefstroom Campus, 2014
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/12231 |
| Date | January 2014 |
| Creators | Zwarts, Marnel |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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