The introduction of the Global Minimum Tax Act (GMT Act) into South African law on December 24, 2024, has created substantial chatter in the tax world, but is it applicable to you?
Tax Consulting SA said that the Act was created to ensure that large multinational enterprises (MNEs) pay a minimum level of effective corporate tax rate in each jurisdiction they operate, which is in line with SA's with international efforts to combat tax base erosion.
This comes after SA's collaboration with the Organisation for Economic Co-operation and Development (OECD) was formalised on 16 July 2023, when both parties signed a Memorandum of Understanding for their inaugural Joint Work Programme.
Tax Consuting said: "Developed under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the GMT Act reflects the principles of the Pillar 2 proposals by setting an effective minimum tax rate of 15% for MNE Groups with annual revenues of at least €750 million."
"South Africa’s adoption of this framework underscores its role as an active participant in shaping equitable international tax standards."
Who does the Global Minimum Tax Act impact?
MNEs with a presence in SA have been preparing for worldwide changes along with the South African impact of the GMT Act, with discussions largely focused on compliance, international competitiveness, and economic impacts, according to Tax Consulting SA.
The tax practice that for many businesses and individuals, this legislation may not be as relevant as it seems - at least for now.
"While the GMT Act aims to curb profit shifting to low-tax jurisdictions and erosion of the tax base by ensuring a fair share of taxes are paid by, the Act specifically targets MNEs with annual revenues of at least €750 million," Tax Consulting SA said.
"This means that unless your business operates on a global scale and meets the revenue threshold, the GMT Act likely does not directly affect you."
In addition to the group annual revenue threshold, Tax Consulting SA offers a list of those who don’t need to lose sleep over the GMT Act:
- Governmental entities
- International organisations
- Non-profit organisations;
- Pension funds;
- Investment fund that is an ultimate parent entity;
- Real estate investment vehicle that is an ultimate parent entity
- Entities owned or partially owned by the aforementioned entities in certain circumstances.
According to Tax Consulting SA, the GMT Act may be a crucial step in international tax reform and whilst the National Treasury as well as the South African Revenue Service (Sars) will be incorporating the changes happening at the OECD level into SA law, for many businesses, it is still a distant issue.
"Instead of being caught up in the hype, businesses should concentrate on more pressing tax challenges, such as permanent establishment risks, transfer pricing, and cross-border compliance and VAT requirements," Tax Consulting SA said.
"By focusing on these critical areas and staying informed, you will ensure your business is well-positioned to handle today’s tax environment and whatever changes the future may bring."
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