DALLE-E

Just like individuals who reside in South Africa, companies can be taxed on their worldwide income if they are residents of South Africa. Even if a company isn’t a South African resident, it can still be taxed on income earned from a South African source.

When is a company a South African resident?

Unlike individuals, a company’s residency isn’t based on the “ordinarily resident” test or “physical presence” tests. Instead, a company is a South African resident if it’s:

1. Incorporated in South Africa
2. Has its place of effective management (“POEM”) in South Africa

Incorporation

1. A South African company’s existence depends on its incorporation with the Companies and Intellectual Property Commission.
2. A company can also be deemed to be incorporated in South Africa if it was incorporated in another state but later domesticated in South Africa.
3. The place of incorporation is usually much easier to determine than a company’s POEM.

POEM

1. The place of effective management is where the key decisions about the company’s business are made. It’s not necessarily where the day-to-day operations happen.
2. Even though we know the legal definition of POEM, it can still be hard to determine a company’s POEM due to complicated factual scenarios.

Double Taxation Agreements (DTAs)

When a company is considered a resident of multiple countries, double tax agreements (DTAs) between countries become crucial to avoid double taxation. However, modern DTAs have stricter rules to prevent tax avoidance. This means it’s important for companies to be clear about their POEM to avoid potential tax issues.

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts at AJM Tax share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday.