South Africa 2020 Budget includes key corporate tax proposals

On February 26, 2020, South Africa’s Finance Minister, Tito Mboweni, presented before Parliament the country’s 2020 Budget, which includes a proposal to restrict deduction of interest expenses.

The Budget proposes to restrict net interest expense deductions to 30% of earnings for years of assessment commencing on or after January 1, 2021. The Government has alongside launched a consultation on the design of this limitation rule and the closing date for comments is April 17, 2020.

According to the Minister, the measure “will address a typical form of base erosion and profit shifting by multinational corporations. This practice involves artificially inflating company debt and/or the interest rate on that debt to a related party in another jurisdiction with a lower corporate income tax rate. The resulting interest payments are deducted in South Africa, reducing the domestic tax base and effectively shifting profits to be taxed at a lower rate offshore.”

In another move, the Budget proposes to broaden the corporate income tax base by restricting the offset of assessed losses carried forward to 80% of taxable income, for years of assessment commencing on or after January 1, 2021.

The Minister noted: “This is viewed as a reasonable approach that affects all businesses equally, rather than restricting the number of years for carrying forward assessed losses, which would disproportionately hurt businesses with large initial investments or long lead times to profitability.”

See Budget Speech