Introduction of South Africa's Global Minimum Tax Act
7 March 2025
In an increasingly globalised economy, multinational enterprises (MNEs) have become adept at leveraging differences in tax systems to minimize their tax liabilities. This practice, known as Base Erosion and Profit Shifting (BEPS), has led to significant revenue losses for countries worldwide. To address these challenges, the Organisation for Economic Co-operation and Development (OECD) and the G20 have developed a comprehensive framework known as the Inclusive Framework on BEPS. A key component of this framework is Pillar II, which introduces the Global Anti-Base Erosion (GloBE) rules.
Pillar II aims to establish a global minimum tax rate of 15% for large MNEs with annual Group consolidated revenue exceeding €750 million. The GloBE rules are designed to ensure that these enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate. By implementing these rules, the OECD and G20 seek to reduce incentives for profit shifting to low-tax jurisdictions, promote tax fairness, and enhance transparency and cooperation between jurisdictions.
In a significant move towards seeking to address these concerns, South Africa (SA) has officially enacted two pivotal pieces of legislation: the Global Minimum Tax Act (Act No. 46 of 2024) and the Global Minimum Tax Administration Act (Act 47 of 2024), which aims to implement the Pillar II GloBE Rules in SA.
Key Features of SA’s Global Minimum Tax Legislation
The key components of the Global Minimum Tax Act include:
- The Income Inclusion Rule (IIR) obliges domestic constituent entities to pay a top-up tax, on low-taxed profits of its foreign subsidiaries if their effective tax rate falls below the minimum threshold set by the GloBE Rules. This ensures that profits, irrespective of where they are generated, are taxed at a minimum rate established by the GloBE Rules.
- Similarly, the Qualified Domestic Minimum Top-Up Tax (QDMTT) applies to domestic profits that fall below the established minimum tax threshold, ensuring consistency within SA’s borders. This provision safeguards against profit shifting and tax base erosion within the domestic economy.
Administration and Compliance
The Global Minimum Tax Administration Act sets out the administrative framework for the Global Minimum Tax Legislation in SA. This Act provides that the Domestic Constituent Entities must file a GloBE Information Return (GIR) with the South African Revenue Services within 15 months after the fiscal year end or 18 months after the fiscal year if it is the first fiscal year which commenced between 1 January 2024 but before 1 January 2025. For example, assume a client has a December year-end. The 2024 year would commence 1 January 2024 thus the first report would be due by 30 June 2026. The second report for the 2025 financial year would be due by end March 2027 (i.e. the 15 months).
Furthermore, the Act mandates longer record-keeping periods of seven years and imposes penalties from R50,000 up to R150,000 for non-compliance.
Key Takeaways for the Future
As the global tax landscape continues to evolve, SA’s proactive steps to implement comprehensive tax legislation signifies its commitment to maintaining a fair and transparent tax system. These measures position SA as a leader in global tax reform efforts, ensuring that all entities, both multinational and domestic, contribute equitably to the nation's revenue. By aligning with the OECD’s Pillar II framework, SA aims to enhance tax transparency and create a more equitable international tax system.
Forvis Mazars OECD Pillar II GloBE guide
Forvis Mazars Group globally have developed a practical guide on Pillar II GloBE to support businesses to navigate their Pillar II journey. The guide and other Pillar II guidance can be accessed here.
Legislation
The South African legislation can be found on the SARS website here.
The primary legislation can be found on the SARS website here.
Authors:
Charl Hall, Director
Nadine Smit, Manager
Pinky Nkone, Consultant
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