South Africa: Listing security on exchange outside South Africa, tax implications
South Africa: Listing security on exchange
A rehauled of the South African exchange control rules is expected to have tax implications with a proposed effective date of 1 January 2021.
The South African exchange control rules currently provide a framework that permits and facilitates the migration of South African securities listed on an exchange as defined and licensed in terms of the Financial Markets Act. This migration, however, is permitted within applicable parameters, one of which being that the migration is not permitted without prior approval from the South African Reserve Bank (SARB).
Over the coming months, the SARB is to implement a “new capital flow management system” that will permit all cross-border financial flows (except for a list of risk-based capital flow measures).
The 2020 Draft Taxation Laws Amendment Bill proposes to introduce a new measure that would effectively provide such transfers would trigger a deemed disposal in the hands of the person that holds the domestic security that is being migrated and listed on the exchange outside of South Africa. The disposal would be equal to the market value of the security (an “exit charge”) on the day when the security is listed on the exchange outside South Africa. In other words, the market value of the security at the time of the exit would be treated as the base cost of that security in the future, if the security is held as a capital asset. If the person holding the security remains a South African tax resident, then that taxpayer would be liable for income tax on further gains when the security is subsequently sold.
Read an August 2020 report [PDF 145 KB] prepared by the KPMG member firm in South Africa
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