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South African investments in Nigeria – Tax structuring and Exchange controls 18 November 2014 Michael Butler www.pwc.co.za.

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Presentation on theme: "South African investments in Nigeria – Tax structuring and Exchange controls 18 November 2014 Michael Butler www.pwc.co.za."— Presentation transcript:

1 South African investments in Nigeria – Tax structuring and Exchange controls 18 November 2014 Michael Butler

2 PwC Integrated Global Structuring – The Fundamentals Overlap Tax Efficient Lending Foreign Tax Credit & Loss Utilisation Manage Deferral Positions IP & Royalty Planning Cash Management & Redeployment (Offshore/Onshore) In-Country Planning Holding Companies Transfer Pricing GPA CFC / Participation Exemption Planning Business Model Planning INTEGRATED GLOBAL STRUCTURE TREASURY MANAGEMENT Manage Forex PROFIT MANAGEMENT TAX ATTRIBUTE MANAGEMENT 2 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

3 PwC International Tax Planning Methodology 3 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls 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

4 PwC Various possible structures 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls 4 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

5 PwC Cross border flows to consider 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls 5 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

6 PwC 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%) 6 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

7 PwC Income Flows Deductible Income Flows Non-DTASA DTA Dividends10%7.5% Interest10%7.5% Royalties10%7.5% Consultancy-, management fees and fees for technical services 10% Non-deductible Flows Dividends10%7.5% SA gives credit (with certain restrictions or requirements) for WHT. Dividends are exempt in SA November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

8 PwC 2) Using an SA Headquarter Company 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”) SA OpCo SA HQ Co Nigeria Interest Royalties Management fees Dividends 8 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

9 PwC 3) Investing via a offshore low tax jurisdiction 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. SA Mauritius Nigeria Interest Dividends Royalties (?) Management fees 9 18 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

10 PwC Dividends Interest [1] [1] Royalties Individuals, companies Qualifying companies (%) Treaty Rates Treaty With: Belgium Canada China (People's Rep.)7.5 Czech Rep France Netherlands Pakistan Philippines Romania12.5 Slovak Republic South Africa107.5 United Kingdom Rates without DTA10 Nigeria – Treaty Withholding Rates Table 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 November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

11 PwC 4) Multinational Investing in Nigeria and SA Intl. Hold Co Nigeria CoSA Group Intl. Hold Co SA HQ Co Nigeria Co SA Group OPTION AOPTION B 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”) November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

12 PwC ? ? ? ? ? ? ? ? ? ? ? ? ? ? Questions November 2014 South African investments in Nigeria - Tax structuring and Exchange controls

13 Thank you 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. 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


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