By: Linda Peter
Director: Tax
The impending implementation of a global minimum corporate tax rate of 15% is poised to significantly reshape South Africa's corporate tax landscape and fortify its tax base.
National Treasury anticipates a notable increase in corporate tax revenue, estimated at R8 billion, for the 2026/2027 tax year, coinciding with the effective rollout of Pillar Two. This initiative is part of the Global Anti-base Erosion (GloBE) rules, formulated within the Organisation for Economic Co-operation and Development’s (OECD) framework to combat base erosion and profit shifting.
Pillar two, which has already been implemented by several countries, mandates a global minimum tax rate, ensuring that multinationals with annual revenues exceeding €750 million are subject to a minimum effective tax rate of 15%, irrespective of profit location.
Outlined within the proposed measures and effective from 1 January 2024, is the income inclusion rule, a crucial aspect of Pillar Two. This rule empowers South Africa to impose a top-up tax on profits reported by qualifying South African multinationals operating abroad if their effective tax rates in those jurisdictions fall below 15%. In essence, it ensures multinational corporations contribute their fair share of taxes in jurisdictions where they operate, curbing tax avoidance and safeguarding the country’s tax base.
For instance, if a South African multinational generates income in a foreign jurisdiction with an effective tax rate lower than the agreed-upon minimum, South Africa may impose additional taxes on the profits earned in that jurisdiction. This mechanism discourages profit shifting practices by multinational corporations seeking to exploit lower tax rates in foreign jurisdictions.
Additionally, the domestic minimum top-up tax authorises the South African Revenue Service (SARS) to collect additional tax from qualifying multinationals with effective tax rates in South Africa below the prescribed minimum rate.
Qualifying multinationals must begin assessing their effective tax rates for income inclusion rule and a domestic minimum top‐up tax from 1 January 2024. However, the absence of a published draft for public comments poses a significant challenge for these companies to adequately prepare for the impending changes. Finance Minister Enoch Godongwana has assured stakeholders that public input will be sought through the release of the Draft Global Minimum Tax Bill and an explanatory memorandum. Given that revenue is only anticipated in 2026/2027, this timeline may afford qualifying companies sufficient preparation time.
As South Africa navigates these tax reforms, it reaffirms its commitment to addressing base erosion and tax challenges arising from digitalisation, positioning itself as an engaged participant in the OECD/G20 Inclusive Framework.