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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

9H. Change of residence, ceasing to be controlled foreign company or becoming headquarter company

 

(1)        For the purposes of this section—

 

'asset'

means an asset as defined in paragraph 1 of the Eighth Schedule; and

 

'market value'

in relation to an asset, means the price which could be obtained upon a sale of that asset between a willing buyer and a willing seller dealing at arm's length in an open market.

 

(2) Subject to subsection (4), where a person (other than a company) that is a resident ceases during any year of assessment of that person to be a resident—
(a) that person must be treated as having—
(i) disposed of each of that person's assets to a person that is a resident on the date immediately before the day on which that person so ceases to be a resident for an amount received or accrued equal to the market value of the asset on that date; and

[Subsection (2)(a)(i) amended by section 14(1)(a) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

(ii) reacquired each of those assets on the day on which that person so ceases to be a resident at an expenditure equal to the market value contemplated in subparagraph (i).
(b) that year of assessment must be deemed to have ended on the date immediately before the day on which that person so ceases to be a resident; and
(c) the next succeeding year of assessment of that person must be deemed to have commenced on the day on which that person so ceases to be a resident.

 

(3)        

(a) Where a company that is a resident ceases during any year of assessment of that company to be a resident or where a company that is a resident becomes a headquarter company in respect of a year of assessment, that company must be treated as having—
(i) disposed of each of that company’s assets to a person that is a resident on the date immediately before the day on which that company so ceased to be a resident or became a headquarter company; and
(ii) reacquired each of those assets on the day on which that company so ceased to be a resident or became a headquarter company,

for an amount equal to the market value of each of those assets.

[Subsection (3)(a) amended by section 14(1)(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

(b) Where a controlled foreign company ceases, otherwise than by way of becoming a resident, to be a controlled foreign company during any foreign tax year of that controlled foreign company, that controlled foreign company must be treated as having—
(i) disposed of each of the assets of that controlled foreign company, to a person that is a resident, on the date immediately before the day on which that controlled foreign company so ceased to be a controlled foreign company; and
(ii) reacquired each of the assets disposed of as contemplated in subparagraph (i) on the day on which that controlled foreign company so ceased to be a controlled foreign company,

for an amount equal to the market value of each of those assets.

[Subsection (3)(b) amended by section 14(1)(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

(c) Where a company that is a resident ceases to be a resident or becomes a headquarter company during any year of assessment of that company as contemplated in paragraph (a)—

[Words preceding subsection (3)(c) substituted by section 21(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

(i) that year of assessment  must be deemed to have ended on the date immediately before the day on which that company so ceased to be a resident or became a headquarter company;
(ii) the next succeeding year of assessment of that company must be deemed to have commenced on the day on which that company so ceased to be a resident or became a headquarter company; and
(iii) that company must, on the date immediately before the day on which the company so ceased to be a resident or became a headquarter company and for the purposes of section 64EA(b), be deemed to have declared and paid a dividend that consists solely of a distribution of an asset in specie—
(aa) the amount of which must be deemed to be equal to the sum of the market values of all the shares in that company on that date less the sum of the contributed tax capital of all the classes of shares in the company as at that date; and
(bb) to the person or persons holding shares in that company in accordance with the effective interest of that person or those persons in the shares in the company as at that date.
(d) Where a controlled foreign company ceases to be a controlled foreign company during any foreign tax year of that controlled foreign company as contemplated in paragraph (a)(b)—

[Words preceding subsection (3)(d) substituted by section 21(b) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

(i) that foreign tax year must be deemed to have ended on the date immediately before the day on which that controlled foreign company so ceased to be a controlled foreign company; and
(ii) the next succeeding foreign tax year of that controlled foreign company must be deemed to have commenced on the day on which that controlled foreign company so ceased to be a controlled foreign company.
(e) Where a company ceases to be a resident as contemplated in paragraph (a), the amount of any capital gain disregarded in terms of paragraph 64B of the Eighth Schedule that was determined in respect of a disposal of an equity share by that company within three years immediately preceding the date on which that company ceases to be a resident, must be deemed, in respect of the year of assessment of that company ending as contemplated in paragraph (c), to be an amount of net capital gain derived by that company from that capital gain.

[Subsection (3)(e) inserted by section 14(1)(c) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(f) Where a company ceases to be a resident as contemplated in paragraph (a), the amount of any foreign dividend that was exempt from normal tax only in terms of section 10B(2)(a) within the three years immediately preceding the date on which that company ceases to be a resident, must be deemed to be a foreign dividend received by or accrued to that company in respect of the year of assessment of that company ending as contemplated in paragraph (c) that is not exempt in terms of section 10B(2).

[Subsection (3)(f) inserted by section 14(1)(c) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(4) Subsections (2) and (3) do not apply in respect of an asset of a person where that asset constitutes—
(a) immovable property situated in the Republic that is held by that person;
(b) [Subsection (4)(b) deleted by section 21 of Act 31 of 2013]
(c) any asset which is, after the person ceases to be a resident or a controlled foreign company as contemplated in subsection (2) or (3), attributable to a permanent establishment of that person in the Republic;
(d) any qualifying equity share contemplated in section 8B that was granted to that person less than five years before the date on which that person ceases to be a resident as contemplated in subsection (2) or (3);
(e) any equity instrument contemplated in section 8C that had not yet vested as contemplated in that section at the time that the person ceases to be a resident as contemplated in subsection (2) or (3); or
(f) any right of that person to acquire any marketable security contemplated in section 8A.

 

(5)        If—

(a) a person disposes of an equity share in a foreign company that is a controlled foreign company;
(b) the capital gain or capital loss determined in respect of a disposal contemplated in paragraph (a) is disregarded in terms of paragraph 64B of the Eighth Schedule; and
(c) as a direct or indirect result of a disposal contemplated in paragraph (a), a foreign company ceases to be a controlled foreign company,

subsection (3) must not apply to any foreign company contemplated in paragraph (c).

 

(6) This section must not apply in respect of any company that ceases to be a controlled foreign company as a result of—
(a) an amalgamation transaction as defined in section 44(1) to which section 44 applies; or
(b) a liquidation distribution as defined in section 47(1) to which section 47 applies; or.

[Subsection 6 amended by section 13(1)(a) of Act No. 43 of 2014]

 

(7) For the purposes of subsections (2) and (3), the market value of any asset must be determined in the currency of expenditure incurred to acquire that asset.

[Subsection 7 inserted by section 13(1)(b) of Act No. 43 of 2014]