The South African Income Tax Act, while not providing for “group taxation”, offers several relief provisions for groups facilitating company reorganizations without immediate cash tax consequences for shareholders.
For instance, Section 42 permits asset-for-share transactions in a tax-neutral manner, provided certain criteria are met. In such transactions, a seller transfers assets to a South African resident company, with the consideration settled through the issuance of new shares matching the asset's value.
Successful group reorganizations must take cognisance of the Income Tax Act, Companies Act, regulatory and compliance considerations, due diligence investigations, valuation and consideration, shareholder approval, section 34 of the Insolvency Act and company secretarial requirements, amongst others. Also, the transactions entered into should be appropriately accounted for and disclosed to SARS.
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