TaxNewsFlash-Africa

May 14, 2009
No. 2009-03

South Africa: Legislative Amendments Concerning Employee Share Plans, Employee Incentive Plans, New Companies Act, and New Financial Thresholds and Filing Fees for “Notifiable” Transactions

KPMG Services (Proprietary) Limited, the South African member firm of KPMG International, has prepared the following brief discussions relating to legislative amendments. At the end of each section (below), a hyperlink is provided to the Web site of KPMG South Africa, where more information on the topic is available.

Income Tax Amendments Make It Easier to Implement and Benefit From Broad-Based Employee Share Plans

Section 8B of the Income Tax Act was introduced with effect from 26 October 2004 to provide for tax-free broad-based employee share plans. The rules established in terms of section 8B are aimed at promoting long-term, broad-based employee empowerment by facilitating employee participation in the success of their employer companies at a minimal tax cost.

Further, section 8B allows for tax beneficial treatment, as an employer can grant shares to employees without an immediate taxable benefit being created in the hands of the employee, whilst the employer qualifies for a deduction.

However, because the qualifying requirements of section 8B were too restrictive and burdensome, section 8B has been seldom applied by employers. Accordingly, the tax incentives allowed in terms of that section have not been passed on to potentially qualifying employees (who generally fall within the low to middle income brackets).

In light of the restrictiveness of section 8B, certain legislative amendments have been introduced. These amendments are geared towards the relaxation of the provisions that prevented or limited the application of section 8B.

Amendments to the Taxation of Employee Incentive Plans

Employee incentive plan (or “scheme” as it is referred to in South Africa) legislation seeks to provide that employees and directors are taxed when they are able to liquidate share scheme awards so as to realise cash to pay their tax liabilities. The legislation is complex and the latest amendments affect existing schemes.

New Companies Act Was Signed by the President

The new Companies Act will only come into effect some time next year on a date to be announced. This date will not be earlier than 9 April 2010, and is expected to be July 2010. During this interim period, businesses will have the opportunity to prepare for the new dispensation that will apply in respect of the creation, operation, management of and reporting by companies in South Africa.

Change in Financial Thresholds and Filing Fees for “Notifiable” Transactions

In terms of the Competition Act, 1998, all transactions that create an acquisition of control and that meet the prescribed financial thresholds must be formally “notified” to the Competition Commission prior to implementation.

On 1 April 2009, the prescribed financial thresholds (see Government Notice 216 of 2009) and filing fees (see Government Notice 215 of 2009) were amended.

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