Abstract
M.Comm.
As a developing country that has recently, since the abolition of apartheid, again
become acceptable to foreigners for investment, consideration should be given to the
attractiveness of this country to foreign capital.
Corporate structures are the preferred business entities that foreigners invest in. Any
potential investment is evaluated with regard to the return that can be obtained. The
distribution of corporate profits by way of a dividend is the usual manner by which
investors obtain a cash return on their investment.
The legislation regarding the taxation of corporate profits and dividends in a country
is thus of great importance when foreign investors evaluate the potential of an
investment. Currently in SA, all corporate profits are taxed at 35% and on all distributed profits -
dividends - 12,5% Secondary Tax on Companies (STC) is levied. If all profits were to
be distributed the effective tax rate is 42,2% which is higher than that of other
countries competing for foreign investment (Katz, 1994:221). Furthermore STC is not
internationally recognised as a tax on dividends or as an additional corporate tax. It
is not embodied in double taxation treaties and in most cases no foreign tax credit is received by shareholders for STC paid. In short - the costs of international
unfamiliarity with STC may outweigh the domestic advantages thereof.
In an interview with Deloitte & Touche International Tax partner, Anne Bennet these
problems that multi-national companies such as RTZ-CRA have with STC and the
need for reform, was expressed. The concerns regarding STC were also stressed in
the Interim Report of the Katz Commission(1994: 168-178, 213-234).
It is clear that STC's shortfalls can seriously hamper SA's attractiveness to foreign
investors. The alternative methods of taxing dividends, that are accepted and known
internationally, should therefore be examined and the most acceptable alternative
should be adopted.