Capital gains tax on overseas shares

A Fin24 user, who is a permanent resident in SA, wants to know about capital gains tax on his overseas proceeds on share sales. He writes:

I am a permanent South African resident with UK citizenship.

I have shares in overseas companies, which I bought with rands.

Can I legally deposit proceeds of future share sales into an overseas bank account and avoid South African capital gains tax?

Barry Ger, associate director, corporate tax at KPMG, responds:

Your query raises both South African tax and exchange control issues. The exchange control issues would depend on arrangements you have made regarding the foreign shares with your local South African bank and they would be best addressed by you contacting the foreign exchange department of the said local bank.  

We will respond below, however, to the tax issues your query raises.

Whether or not you will be subject to South African capital gains tax on capital gains arising from your disposal of your shares in the overseas company, depends on whether you are a "resident" for tax purposes in South Africa.

It is possible you may be a South African tax resident notwithstanding the fact that you remain a UK citizen. Tax residence in South Africa depends on many factors, including the amount of time you have spent in South Africa, whether you regard South Africa as your permanent home and the provisions of the relevant Double Tax Agreement between South Africa and another country.

Assuming you are a tax resident in South Africa, you will be taxed on your worldwide capital gains in South Africa and you would not "avoid" the tax merely because you place the proceeds from the disposal of the shares in a foreign bank account.

If you are not tax resident in South Africa, South Africa is entitled to tax you only on capital gains from South African immovable property interests or assets that are attributable to a permanent establishment - like a fixed place of business - you maintain in South Africa.

Please note that a “South African immovable property interest” includes a shareholding of 20% or more in a foreign company where 80% of the market value of that foreign company derives from South African immovable property that is not held as trading stock.

This means that if you are not a tax resident of South Africa and hold shares, in your private capacity, in a foreign company that does not hold, directly or indirectly, any South African immovable property assets then you will not be subject to South African capital gains tax on capital arising from the disposal of those shares.

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