New ‘top up’ tax for businesses in South Africa

 ·21 Jan 2025

Big businesses in South Africa face having to pay a ‘top up’ tax to the South African Revenue Service (SARS) thanks to a new global minimum tax legislation signed by President Cyril Ramaphosa.

The president signed the Global Minimum Tax Act and Global Minimum Tax Administration Act into law in 2024.

The legislation gives effect to the OECD Global Anti-Base Erosion (GloBE) rules designed to protect countries from possible tax losses due to multinational enterprises operating in low-tax (or ‘tax haven’) jurisdiction.

According to Jordan Mulindi, a tax attorney at Latita Africa, around 40 major South African companies likely qualify for this tax.

“These companies will have to make up the difference between their effective company income tax in low-tax regions and the 15% target, resulting in a Top-up Tax payable to SARS,” he said.

According to the latest tax statistics published by SARS at the end of 2024, corporate taxes amounted to R317 billion in the 2022 tax year—approximately 18% of total revenues.

While SARS anticipated about 1.1 million companies to submit returns for the year, it is evident that most of the earnings are concentrated at the top.

The taxman noted that only 549 large companies (0.2% of the companies with positive taxable income) had taxable income of more than R200 million and were liable for 66.5% of the corporate tax assessed.

Therefore, the resultant contribution to South Africa’s GDP and SARS revenue from top multinationals who fall under the new laws could be significant, Mulindi added.

However, the expert noted that the OECD GloBE rules, which are often referenced in the new legislation, are remarkably complex, with sophisticated conditions.

“To apply them correctly and beneficially, multinationals will have to carefully review their corporate and tax structures and adapt accordingly,” he said.

Companies will have to submit a so-called ‘GloBE Information Return’ (GIR) that must be submitted to SARS by each entity belonging to the group, both locally and abroad.

Similarly, the entities belonging to foreign multinationals operating in South Africa must submit a GIR for their own tax authority.

How these submissions should be made varies, from all entities nominating either a local or foreign entity to submit a consolidated return on their behalf to some not having to make submission at all due to this function being performed in another jurisdiction that has an agreement with South Africa.

“However, they do it, communicating complete and correct information to key entities will be vital,” Mulindi said.

Transition period

Because the new legislation is backdated to 1 January 2024, concern have been raised that there will not be enough time to implement the systemic changes needed.

However, Mulindi noted that the Acts and the GloBE rules specify a “transition year” to accommodate the switch over.

“Companies will normally be required to submit their GIR 15 months after their year-end. Initially, though, companies whose financial year starts between 1 January 2024 and 1 January 2025 will have 18 months after their year-end to make their submission,” he said.

“So, for example, a company whose financial year begins on 1 March 2024 will only have to submit a GloBE Information Return 18 months after its year-end on 28 February 2025.”

Again, there are exceptions and exclusions to this rule that MNEs must make themselves aware of.

For the businesses that fail to follow the new laws, penalties await.

Mulindi noted that the penalties for non-compliance are “not significant” compared to the typical revenues these companies earn.

There is a base administrative penalty up to R50,000, doubled to R100,000 if the Top-up Tax exceeds R5 million, and tripled to R150,000 if it exceeds R10 million.

“However, the new Acts are applied on top of – not instead of – the existing Tax Administration Act, in which case penalties and interest on late Top-up Tax can become substantial,” he warned.

Show comments
Subscribe to our daily newsletter