South Africa has comprehensive controlled foreign company ("CFC") rules in its law. An important exemption is the business establishment exemption, whereby provided there is a real and substantial qualifying business establishment, suitably equipped and staffed by appropriate management and employees, essentially deriving active business profits, the profits will not be taxable in the South African resident shareholders' hands.
Coupled with this is the participation exemption. Whereas normally foreign dividends are taxable in full, with credit given only for foreign withholding taxes paid (subject to a special dispensation set out below), the participation exemption rules provided that if a shareholder held more than 25% of the equity share capital of a foreign company, the dividends receivable were exempt from tax, and the proceeds on disposal of the shares, provided the shares were sold to a non-resident, were exempt from capital gains tax.
