Since the 1st of January 2021, South African resident individuals with authorised (also termed permissible) foreign assets may invest in South Africa, provided that where South African assets are acquired through an offshore structure, resulting in a loop structure, the investment must be reported to an Authorised Dealer (South African bank) as and when the transaction is finalised.
To ensure tax efficiency, it is important that the holding entity through which South Africans invest into South Africa is incorporated or established in a jurisdiction that has entered into a double taxation agreement (“DTA”) with South Africa. It is for this reason that Cyprus’ popularity as a holding vehicle jurisdiction has increased significantly since the beginning of the year 2021. South Africa and Cyprus entered into a DTA which came into force on the 8th of December 1998. The DTA was amended in 2015. The key changes of the treaty relate to dividends tax and exchange of information.
Also important to highlight is the fact that the SA/Cyprus DTA gives Cyprus a significant advantage above other treaty jurisdictions of South Africa because of the fact that the gains on the sale of property rich companies owned by a Cyprus company are not taxed in SA (and neither is it taxed in Cyprus provided that the property is not situated in Cyprus). In terms of other DTA’s that South Africa has entered into the gains would usually be taxable in SA.
- 5% WHT on Dividends paid up from the SA company, provided the Cyprus company holds at least 10% shares in the SA company.
- 0% WHT on both Interest and Royalties paid up from the SA company.
- 0% CIT on Dividends received in the Cyprus company from SA.
- 12.5% CIT on Interest received in the Cyprus company from SA.
- 2.5% CIT on Royalties received in the Cyprus company from SA, provided the IP Box or NID regime apply.
- 0% WHT on Dividends, Interest and Royalties paid up to the Trust from the Cyprus company.