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South Africa: Securities transfer tax implications of Brexit

South Africa: Securities transfer tax implications

As a consequence of Brexit, a number of investment funds domiciled in the United Kingdom have been restructuring their portfolios. When a fund holds South African investments, such restructurings may have South African transfer tax consequences—even if the fund has no presence in South Africa.

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The South African Securities Transfer Tax Act, No 25 of 2007 imposes a securities transfer tax (currently at a rate of 0.25% of the taxable amount) in respect of every “transfer” of any security issued by:

  • A company incorporated in South Africa, or
  • A company incorporated outside South Africa and listed on an exchange licensed under the South African Securities Services Act, No 36 of 2004

The term “transfer” includes:

…the transfer, sale, assignment or cession, or disposal in any other manner, of a security or the cancellation or redemption of that security, but does not include

(a)    any event that does not result in a change of beneficial ownership;

(b)    ….; or

Thus, it follows that the securities transfer tax will only be imposed if the transaction results in a change in the “beneficial ownership” of the security.

KPMG observation

The term “beneficial ownership” is not defined in the law. However, it appears that the legislature intended that an economic meaning be given to the term for securities transfer tax purposes. Also, the concept of beneficial ownership must be interpreted narrowly and absent a nominee or agent agreement, the legal owner of a security would also be regarded as the beneficial owner of the security, unless the legal owner has been deprived of all rights, which would normally attach to a security.

In limited circumstances, the transfer of a security is exempted from securities transfer tax.
 

Read a July 2020 report [PDF 117 KB] prepared by the KPMG member firm in South Africa

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