Holding company structures – Africa via South Africa The decision to invest is an outcome of interplay of many factors like social, political, economic, technological which mainly impacts a business. Most of the multinationals or individuals aspiring to invest in a particular company look for the basic conditions like a good macroeconomic policy, adequate and well structured tax systems and a satisfactory environment for investments in the host country. South Africa remains the highest ranked country in Sub Saharan Africa attracting offshore investments. Its strength lies in the advanced financial market it possesses and the market size it possess. In recent times the South African government has endeavoured to create a stable environment for attracting investments with various policy amendments. One of the significant measures taken by the South African government is the introduction of Headquarter company regime (HQC). In most of the cases the decisions to establish a headquarter is driven by the quantum of tax benefits derived by the decision to do so. Many jurisdictions are popular for establishing holding and headquarter companies for multinational groups like Luxembourg, Netherlands, Switzerland, Singapore Mauritius etc. The reason behind the increasing demand for such establishments is its trait to attract offshore investments. International headquarter companies are often established where multinational groups of companies have significant economic interests. A new tax regime with respect to the Headquarter Companies was enacted in South Africa with effect from 1 January, 2011.The main purpose of introducing this new tax regime was to ensure that the extant tax regime did not act as a barrier to Multinational companies wishing to invest in Africa and also to make it a magnet attracting FDI from all over the world. A HQC in South Africa is subject to South African Corporate Income Tax (which is currently 28%) whereas it is exempt from dividend tax and capital gains tax and also from applicability of Controlled Foreign Company (CFC) and thin Capitalization rules. Additionally, Applicability of Transfer pricing regulations is also barred under the HQC regime.
This newly adopted regime is always compared to the well established (almost identical) concepts adopted by various countries around the globe especially Mauritius. Mauritius has established a number of regimes that provide attractive opportunities for companies to invest through Mauritius into other jurisdictions. Global Business Companies Category – 1 (GBC1) is one of the regimes available in Mauritius for resident corporations proposing to conduct business outside Mauritius. In order to establish a GBC1 it is mandatory to fulfill the requirements laid down under the Mauritian laws. These types of companies avail numerous tax benefits in Mauritius. For example, GBC1 companies are resident in Mauritius for tax purposes, there are no capital gains tax, no withholding tax on payment of dividends, interests or royalties, there is no stamp duties or capital taxes, the concept of inheritance tax is not applicable to this regime. Adding further to the plethora of benefits, Global Business Category 1 (GBC1) companies are liable to tax at the rate of 15%. However, they are entitled to a foreign tax credit equivalent to the higher of 80% of the Mauritius tax chargeable or the actual tax suffered abroad in respect of foreign-source income. The maximum effective tax rate is therefore 3%.
Comparative study of benefits offered by the HQC regime in South Africa and GBC 1 regime in Mauritius
Apparently, the Mauritian regime appears to be more beneficial for the purpose of investments due to its comparative low rate of taxation (as mentioned above). However, the total amount of off shore capital invested in Africa is relatively small but is growing rapidly, it clearly demonstrates the capacity of being the top-most HQC structure for routing investment. Its high market potential, well developed infrastructures and a reasonably competitive domestic economy is adding to its popularity and attracting investments from all over the world.
About Taxpert Professionals: Taxpert Professionals is a conglomeration of multi-diverged professionals known for providing concentrated services in relation to taxation and corporate laws in a seamless manner. Taxpert professionals believe in the creation of value through advising and assisting the business. At Taxpert the pool of professionals from different spectrum like tax, accountancy, legal, costing, management facilitate the conversion of knowledge into beneficial transaction. About CA. Sudha G. Bhushan : Sudha is qualified Chartered Accountant and a Company Secretary with more than a decade of experience in the Foreign Exchange Management Act, RBI, Transfer pricing and International taxation matters. She is a noted speaker and author. Her articles are regularly published in the Journals of several institutes and at various other forums and has authored the following books: Practical aspects of FDI in India published by Institute of Company secretaries of India. Due Diligence under Foreign Exchange Management Act, 1999 published by CCH. Comprehensive Guide to Foreign Exchange Management in two volumes published by CCH. Practical Guide to Foreign Exchange Management published by CCH, a Walter Kluwers company. Handbook on FEMA, Publication of Institute of Chartered Accountants of India. A scholar throughout her life she has been awarded many awards and recognitions including “Women Empowerment through CA Profession” by Northern India Regional Council (NIRC) of Institute of Chartered Accountants of India (ICAI). Backed by experience in International firms she has extensive experience of handling international transactions. She advises corporate as well as government authorities in lot of intricate transactions. Rendering tax and regulatory advisory services, she has overseen and played a crucial role in the execution of complex international transactions involving issues revolving around tax, repatriation, minimization of tax exposure, Foreign Investment (Inbound and outbound) etc.
She is on the Board of many esteemed listed companies as Independent director. She is member of Committee of International Taxation of WIRC, ICAI, Member of Editorial Committee of WIRC of ICAI and Committee of women empowerment of ICAI. She can be contacted at email@example.com || 09769033172