South Africa: Tax provisions concerning financial sector in budget 2022

Proposals for the financial sector

Proposals for the financial sector

The budget 2022 presented in South Africa on 23 February 2022 includes certain proposals for the financial sector.

IFRS 17 insurance contracts and the impact on taxation of insurers

IFRS 17 Insurance Contracts (IFRS 17)—a new international accounting standard that changes the way insurance contracts are accounted for—replaces the interim standard IFRS 4 Insurance Contracts.

IFRS 17 will be effective for reporting periods commencing on or after 1 January 2023. IFRS 17 provides consistent application of these principles enabling users of financial statements to meaningfully compare financial results of insurers. The standard specifically sets out the principles of recognition, measurement, presentation and disclosure of insurance contracts.

The introduction of IFRS 17 may have a material implication on both the long- and short-term insurance industry, and the relevant income tax provisions will require amendments to minimize unintended (cash flow) disruptions. National Treasury will assess the tax implications, and it is proposed that changes may be made to the income tax provisions affecting insurers as a result of the implementation of IFRS 17.

Alignment to insurance law definitions

A South African resident shareholder is required to impute its share of the income of a controlled foreign company (CFC), provided certain requirements are met.

There are certain exclusions that apply to the imputation requirement. For insurance companies, specifically the policyholder funds, one such exclusion is when the participation rights in the CFC can be directly attributable to a linked policy. With the introduction of the Insurance Act (effective 1 July 2018), certain definitions such as “linked policy” have been removed. National Treasury is now proposing that the “linked policy” exclusion be amended to refer to the appropriate provision in the Insurance Act.

Taxation of collective investment schemes

The 2018 Taxation Laws Amendment Bill proposed to tax trading profits of certain collective investment schemes as revenue—rather than capital. Based on comments received in response to that proposal, National Treasury agreed to work with affected stakeholders during the 2019 legislative cycle to find solutions to address the taxation of trading profits.

Additional concerns have been raised over the past two years that have now prompted National Treasury to release a discussion document that will address the tax treatment of profits generated by collective investment schemes. The proposed discussion document will be published for public comment before any amendments to the tax legislation is proposed.

Read a February 2022 report [PDF 180 KB] prepared by the KPMG member firm in South Africa

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.