New tax section aims to support overseas capital mobility for SA citizens
CAPE TOWN - THE NEW Section 9K to the Income Tax Act that became effective on January 1 aims to make it easier to take the ownership of equities overseas for tax purposes, according to Dr Gerhard Nienaber and Ashely Mhona of Probity Advisory.
Exchange control in South Africa is administered by the South African Reserve Bank (Sarb). Section 9K aims to bring about an exchange control regime that supports capital mobility by granting South African residents the ability to export shares listed on a South African stock exchange, for tax purposes, without stringent constraints.
Nienaber and Mhona said Section 9K would stimulate investments by removing the cumbersome Sarb approval processes, enabling South African residents to have more freedom over the movement of their securities, and the subsequent acquisition of other investments.
Having more freedom to the movement of securities enables residents to remove their shares from exposure to the unpredictability of the South African rand at any such time at which the stability of the share price becomes dubious.
Additionally, for South Africans wishing to emigrate, Section 9K permits easier migration of listed shares without strenuous procedures amidst the stressful plans of emigrating.
And should the share price no longer be favourable in South Africa, the shares need not be disposed of on the date of emigration, but can be held until a time that the price has improved, and the return has increased in value.
Prior to the new Section 9K, a South African resident wishing to export shares listed on a South African stock exchange was prohibited from migrating the listed shares without obtaining approval from Sarb.
The cental bank stipulated a range of prerequisites before approval was granted, including the opening of a foreign bank account in the country of transfer, removal from the South African stock exchange registry and endorsement of the shares under the classification “non-resident”.
Section 9K aims to cut down the cumbersome Sarb approval procedures to externalise listed securities.
Capital gains tax will arise on the deemed disposal. A deemed disposal means that the securities will not actually be sold, but they are assumed to have been sold on the date of delisting, which is the date on which the movement of the securities will no longer be administered by Sarb.
The selling price of the security on the date of delisting, less the cost price at which the security was initially acquired for; equals the capital gain or loss to be declared to the South African Revenue Service (Sars).
Furthermore, in the event that the person delisting their securities wishes to remain a tax resident of South Africa, another capital gain or loss to be declared to Sars will be realised on the date of sale of the delisted security to another party in or outside the republic. This is because South African residents are taxed on income and gains earned world-wide.