Michael Butler - PWC South Africa

Report
www.pwc.co.za
South African
investments in Nigeria –
Tax structuring and
Exchange controls
18 November 2014
Michael Butler
Integrated Global Structuring – The Fundamentals
Overlap
TREASURY
MANAGEMENT
Cash Management &
Redeployment
(Offshore/Onshore)
Manage
Forex
Tax Efficient
Lending
Transfer Pricing
GPA
PROFIT
MANAGEMENT
Foreign Tax Credit &
Loss Utilisation
INTEGRATED
GLOBAL
STRUCTURE
Business Model
Planning
Holding
Companies
In-Country
Planning
TAX ATTRIBUTE
MANAGEMENT
Manage
Deferral
Positions
IP & Royalty
Planning
South African investments in Nigeria - Tax structuring and Exchange controls
PwC
CFC / Participation
Exemption Planning
18 November 2014
2
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
PwC
18 November 2014
3
Various possible structures
01
02
03
04
Investing straight from South Africa
Investing from South Africa through an
SA Headquarter Company
Investing via a low tax jurisdiction
Multinational holding SA and Nigeria
Companies
South African investments in Nigeria - Tax structuring and Exchange controls
PwC
18 November 2014
4
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
PwC
18 November 2014
5
1) Direct Holding
SA OpCo
Nigeria
OpCo
•
•
•
Interest
Royalties
Management fees
Dividends
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
PwC
18 November 2014
6
Income Flows
Deductible Income
Flows
Non-DTA
SA DTA
Dividends
10%
7.5%
Interest
10%
7.5%
Royalties
10%
7.5%
Consultancy-, management
fees and fees for technical
services
10%
10%
10%
7.5%
Non-deductible Flows
Dividends
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
PwC
18 November 2014
7
2) Using an SA Headquarter Company
SA OpCo
SA HQ Co
Nigeria
Interest
Royalties
Management fees
Dividends
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
PwC
18 November 2014
8
3) Investing via a offshore low tax jurisdiction
SA
Royalties (?)
Management fees
Mauritius
Interest
Dividends
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
PwC
18 November 2014
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Nigeria – Treaty Withholding Rates Table
Dividends
Individuals,
companies
(%)
Interest [1]
Qualifying
companies
(%)
Royalties
(%)
• Effective date: 1 January 2014
(%)
Treaty Rates
Treaty With:
Belgium
Canada
China (People's Rep.)
Czech Rep.
France
Netherlands
Pakistan
Philippines
Romania
Slovak Republic
South Africa
United Kingdom
Rates without DTA
15
15
7.5
15
15
15
15
15
12.5
15
10
15
12.5
12.5
7.5
12.5
12.5
12.5
12.5
12.5
12.5
12.5
7.5
12.5
12.5
12.5
7.5
15
12.5
12.5
15
15
12.5
15
7.5
12.5
12.5
12.5
7.5
15
12.5
12.5
15
20
12.5
15
7.5
12.5
10
10
10
10
South African investments in Nigeria - Tax structuring and Exchange controls
PwC
• 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.
18 November 2014
10
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
PwC
18 November 2014
11
Questions
?
?
?
?
?
??
?
South African investments in Nigeria - Tax structuring and Exchange controls
PwC
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18 November 2014
12
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)21 529 2393
M: +27 (0)83 457 0534
[email protected]
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
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information contained in this publication or for any decision based on it.
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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 www.pwc.co.za for further details.

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