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UK corporate tax rate now too low for SA HoldCo’s liking

UK Corporation Tax Rate – reduced to 19% in 2017 and 18% in 2020

The main rate of Corporation Tax (UK) at a high 28% rate in 2010, was already reduced to its current 20%. In Budget 2015, in order to boost UK businesses, the compartive company tax rate will now reduce to 19% on 6 April 2016 (i.r.o. tax yea April 2017).

In terms of SA tax law, controlled foreign company (CFC) income is imputed as Hold Co’s income, duly taxed by SARS. For a SA Hold Co with a CFC subsidiary in a high tax jurisdiction, there is a so called high tax jurisdiction exemption.

Where a foreign subsidiary (the CFC) is taxed at 75% of the SA tax rate, the CFC income in not imputed into the SA tax system. At a current 28%, the high tax jurisdiction exempted CFC’s need to pay tax at a corporate rate of at least 21%.

In the SA tax year ending February 2016, the SA Hold Co regime need now top-up to SARS the tax rate discount enjoyed in the UK. Soon the SARS top up on UK entities will equal 10% – a figure far too high to be considered fair and reasonable.

Yes, there may be other reason for the CFC enjoying SARS tax exemption, yet one cannot but guess the number of SA Holding Companies are now reconsidering the investment into the UK.

For SA resident Holding Companies the last year’s 2% corporate tax rate saving, equates to an 8-9% effective tax rate increase.

Could we expect SARS to review the anomaly created because the UK’s corporate tax reduction of 10% in the last say 6 years.

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