Israel – South Africa Tax Treaty

Business Activity in South Africa

South Africa’s total GDP currently is about $373.23 billion. By 2029, the total GDP is expected to increase by approximately $70 billion. In 2022, South Africa exported $147 billion, making it the number 34 exporter in the world. A majority of their exports are gold, platinum, coal briquettes, and cars, with its top destinations being China, the United States, Germany, India, and Japan.

Key economic sectors in South Africa include mining, transportation, energy, tourism, and agriculture. Tourism, especially, remains one of the main focuses of the country. To mention, Department of Tourism’s goal in South Africa is to develop and grow the tourism sector. With tourism being a factor in the country’s GDP, they are looking to improve tourism to help an economic recovery. In the first quarter of 2023, over 2 million tourists visited which was a huge increase compared to 2022 in which 5.7 million tourists visited South Africa.

Conducting business in South Africa can come with many advantages such as a foreign tax credit and special economic zones. Some special economic zones include COEGA, Richards Bay, East London, Saldanha Bay, Dube Trade Port, etc.

Bilateral Agreements Between South Africa and Israel

1. International Investments Agreement
2. Double Taxation Agreement

Reciprocal Promotion and Protection of Investments

The International Investment Agreement between South Africa and Israel was signed on October 20, 2004. The agreement seeks to promote and protect respective investments, stimulate business efforts, and improve prosperity in both states.

To view the full agreement in English, click here.

Convention of the Prevention of Double Taxation

The agreement between the governments of Israel and South Africa regarding the avoidance of double taxation was signed on February 9, 1978, and entered into force on March 31, 1978.

To read the agreement in English, click here.

Applicability of the MLI

Both Israel and South Africa have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI), which means that there is an automatic exchange of information between the two countries.

Israel signed the agreement on June 7, 2017, and ratified it on September 13, 2018. South Africa signed the agreement as well on June 7, 2017, and later proceeded with the ratification on September 30, 2022.

Residency for Tax Purposes in South Africa

Residence of an Individual

An individual who is ordinarily resident or just present in South Africa for a specific period of time is considered a tax resident. There is no certain definition of an ordinary resident but it is considered an individual’s most fixed place of residence. Otherwise, to be a tax resident, one must be located in South Africa for at least 91 days of the tax year as well as the preceding five tax years. It must total over 915 days in those five years.

To read how an individual can become a tax resident of Israel, click here.

Residency of a Company

A company is considered a tax resident of South Africa if incorporated in the country or its central management is located there. If a company is an exclusive resident of another country in terms of a double taxation agreement, the company is not a tax resident of South Africa.

To read about how a company becomes a tax resident of Israel, click here.

The Tax System in South Africa

The South African tax authority is called The South African Revenue Services (SARS).

Income Taxation: 18% – 45%

Taxation of Companies: 27%

VAT: 15%

Capital Gains Tax: Individual: 18%, Companies: 21.6%

 Withholding Tax

Inheritance Tax and Estate Tax in South Africa

In South Africa, an estate duty is charged on the value of a deceased person’s estate after deducting ZAR 3.5 million. The tax rate is 20% for estates valued up to ZAR 30 million and 25% for estates worth more than ZAR 30 million. Non-residents are also subject to estate duty, but only for their assets located in South Africa.

Relocation to South Africa

There are about 51,000 people in South Africa who self-identify as Jewish. This is considered the core Jewish population while there are approximately 63,000 Jews which includes the core population and individuals born with at least one Jewish parent or consider themselves partly Jewish. The Jewish population ranks the 11^th largest in the world. The South African Jewish Board of Deputies represents the Jewish community in South Africa. 85 percent of the community is affiliated with orthodox synagogues as the majority of the Jewish population consists of Ashkenazi and Sephardic Jews.

South Africa offers some tax incentives in order to encourage newcomers to relocate. For instance, South Africa offers a 150% tax deduction on any venture developing new patentable innovations. In addition, companies can receive a 42% tax deduction on work that’s research and development related. If an individual is passionate about sustainability, South Africa leads the way in this industry as the country offers tax incentives that save CO2 as well as carbon tax credits. In the 2019-2020 financial year, approximately 10,740 permanent residence permits were issued across all categories.

Real Estate Taxation in South Africa

Property tax in South Africa depends on the municipal valuation of the land. Typically, properties used for business are taxed at higher rates which can vary by municipality. The municipality with the highest rate is Mahikeng while the lowest is in Polokwane.

Transfer duty is a tax on the transaction of the property. The individual acquiring the property is liable for transfer duty taxes. Transfer duty declaration must be submitted to the SARS and is payable within 6 months of the transaction. The rates are determined based on the purchase price or market value, depending on which is higher. Transfer duty will increase with the value of the property.

Transfer of Funds from Israel to South Africa

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in South Africa

The registration of companies in South Africa is governed by the Companies Act of 2008. Following are the main types of companies that operate in the country:

Private Companies (Pty) Ltd – Private companies can enter contracts independently from their owners. The shareholder liability is limited to the amount invested into the company. Private companies are not eligible to offer securities to the public. The biggest advantage of having a private company is the limited liability.

Public Companies (Ltd) – Public companies can offer shares to the public and can be listed on the stock exchange. Under the new act, only one member is needed for incorporation compared to the previous act where seven members were needed. Public companies have limited liability and have an easier ability to raise a large amount of capital. Although they have very high upside, it can also be very costly.

Personal Liability Companies (Inc) – Similar to a private company, the directors are completely liable for the debts of the company. There is limited liability for the shareholders.

State-Owned Companies (SOC Ltd) – identical to public companies, SOCs are considered “state-owned enterprises” or a company owned by a municipality.

Non-profit Organizations – Non-profit companies are for public benefits, social activities, or group interests. Any profit brought in does not get distributed to the shareholders but gets reinvested into the company.

Incentive Laws in South Africa

To encourage individuals to conduct business in South Africa, one incentive offered is the Employment Tax Incentive (ETI) which is an incentive to encourage employers to hire young workers looking for employment. This incentive reduces the Pay-As-You-Earn (PAYE) amount. To learn more about PAYE, click here. Employers can claim the incentive for 24 months.

Additional credits and incentives in South Africa include:

• Foreign Tax Credit. The South African Income Tax Act provides a rebate against CIT with respect to foreign taxes paid on foreign income. The rebate is limited to the total normal tax payable.
• Research and Development. Certain costs on R&D activities in South Africa are 150 % deductible.
• Industrial policy projects. Energy-efficient projects are subject to an incentive package. Approved projects are granted a tax allowance of 55% of the cost of a manufacturing asset.
• Special Economic Zones (SEZ). Companies conducting business in SEZs can obtain an SEZ incentive which is a reduced corporate tax rate of 15%.
• International Shipping Incentive. A resident company that holds a share in a South African flagged ship does not need to pay income tax on the income from international shipping.

South Africa Double Tax Treaties