Minister of Finance Trevor Manuel has introduced legislation in the National Assembly that provides greater flexibility for foreign corporate reorganisations. It also introduces tax deductions for the refurbishment of decayed buildings.
Manuel said in piloting the Revenue Laws Amendment Bill that the current system of taxation of foreign dividends had “the unintended consequence of discouraging the repatriation of dividends”.
“This follows from the fact that, where a dividend is taxable, a taxpayer with a meaningful interest in a company may use his or her influence to delay the declaration of dividends by that company.
“It is therefore proposed that dividends be exempted from taxation where a taxpayer holds more than 25% of the ordinary shares in the company declaring the dividend.”
This has been explained as applying extended participation exemption not only to foreign dividends paid to South African holding companies but also to the sale by South African companies of 25% or more of the shares held in a foreign company to a foreign entity.
In terms of the Bill tax deductions are allowed to encourage restoration of urban areas suffering from decay. Manuel said this applied to “valuable infrastructure that has been built up in the past” that was underutilised and
was “decaying along with the areas it services”.
“The reversal of this trend where it occurs is a substantial challenge for both local government and national government. In order to build on national government’s contribution in addressing the challenge an accelerated depreciation allowance is proposed for urban development zones.”
The allowance is granted to taxpayers refurbishing existing buildings or constructing new buildings within demarcated urban development zones.
For example the amount of the allowance contemplated in the case of a new building is equal to 20% of the cost to the taxpayer of the erection deductible in the year of assessment during which the building is brought into use by that taxpayer.
Added to that is 5% of that cost in each of the 16 succeeding years of assessment.
In the case of an improvement of any existing building 20% of the cost can be deducted in the year of assessment followed by a further 20% of that cost in each of the four succeeding years of assessment.
The zones are identified in Buffalo City (East London), Cape Town, Ekurhuleni, Emalahleni, Emfuleni, eThekwini (Durban), Johannesburg, Mafikeng, Mangaung, Matjhabeng, Mbombela, Msunduzi, Nelson Mandela (Port Elizabeth area), Polokwane, Sol Plaatje (Kimberley) and Tshwane. — I-Net Bridge