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18 November 2014 Michael Butler
South African investments in Nigeria – Tax structuring and Exchange controls 18 November 2014 Michael Butler Front cover slide with activated logo
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Integrated Global Structuring – The Fundamentals Overlap
TREASURY MANAGEMENT Cash Management & Redeployment (Offshore/Onshore) Manage Forex Tax Efficient Lending Foreign Tax Credit & Loss Utilisation INTEGRATED GLOBAL STRUCTURE Transfer Pricing GPA In-Country Planning Holding Companies PROFIT MANAGEMENT TAX ATTRIBUTE MANAGEMENT Business Model Planning Manage Deferral Positions CFC / Participation Exemption Planning IP & Royalty Planning South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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International Tax Planning Methodology
The goal is to: Increase the potential for profits Limit the taxation of those profits Repatriate them with as little further tax as possible, i.e. reduce global tax charge South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Various possible structures
Investing straight from South Africa 01 Investing from South Africa through an SA Headquarter Company 02 Investing via a low tax jurisdiction 03 Multinational holding SA and Nigeria Companies 04 South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Cross border flows to consider
Dividends Interest Management fees Royalties Taxes to consider include: Withholding taxes (“WHT’s”) Income Tax Transfer Pricing VAT Also consider exchange controls (SA and Nigeria) and work permits South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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1) Direct Holding SA OpCo Nigeria OpCo Interest Royalties
Management fees Dividends Nigeria OpCo Nigerian Corporate Tax rate of 30% The SA Tax rate of 28% The following expenses are deductible in Nigeria (with various caveats), but suffer WHT’s: Interest (7.5%) Royalties (7.5%) Management fees (10%) South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Income Flows Deductible Income Flows Non-DTA SA DTA Dividends 10% 7.5%
Interest Royalties Consultancy-, management fees and fees for technical services Non-deductible Flows SA gives credit (with certain restrictions or requirements) for WHT. Dividends are exempt in SA. South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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2) Using an SA Headquarter Company
SA OpCo SA HQ Co Interest Royalties Management fees Dividends Nigeria WHT’s similar to direct holding, but benefits include: Non-Resident for excon purposes Foreign dividend exemption No dividends tax Forex benefits No CFC regime CGT benefits No thin capitalization (“thin caps”) South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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3) Investing via a offshore low tax jurisdiction
SA Interest Dividends Royalties (?) Management fees Mauritius Nigeria Pro’s: Mauritius’s tax maximum 3% Mauritius is outside SA Excon Con’s: No DTA with Nigeria SA credit for WHT’s lost, so if management services are performed from SA on I.P held in SA, then related payments should not be routed via Mauritius. South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Individuals, companies
Nigeria – Treaty Withholding Rates Table Dividends Interest [1] Royalties Individuals, companies Qualifying companies Effective date: 1 January 2014 Withholding tax rates that are applicable to dividend, interest and royalty payments by Nigerian companies to non-residents under the tax treaties in force as at the date of review. The 10% domestic withholding tax rate is reduced to 7.5% for dividends, interest and royalties for companies in countries with an effective tax treaty with Nigeria. Where, in a particular case, a treaty rate is higher than the domestic rate, the latter is applicable. (%) Treaty Rates Treaty With: Belgium 15 12.5 Canada China (People's Rep.) 7.5 Czech Rep. France Netherlands Pakistan Philippines 20 Romania Slovak Republic South Africa 10 United Kingdom Rates without DTA South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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4) Multinational Investing in Nigeria and SA
OPTION A OPTION B Intl. Hold Co Intl. Hold Co Nigeria Co SA Group SA HQ Co SA Group Nigeria Co Pro’s: Utilise SA/Nigerian DTT SA Headquarter Co’s have: Non-Resident for excon purposes Foreign dividend exemption No dividends tax Forex benefits No CFC regime CGT benefits No thin capitalization (“thin caps”) South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Questions ? ? ? ? ? ? ? ? ? ? ? ? ? ? South African investments in Nigeria - Tax structuring and Exchange controls 18 November 2014
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Thank you PricewaterhouseCoopers Tax Services (Pty) Ltd. No. 1 Waterhouse Place, Century City 7441 PO Box 2799, Cape Town 8000 South Africa T: +27 (0) M: +27 (0) Michael Butler Associate Director This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PwC Inc. [Registration number 1998/012055/21](“PwC”). All rights reserved. PwC refers to the South African member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details.
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