South Africa Implements 15% Global Minimum Corporate Tax Rate: A Milestone in Tax Reform

The South African president, Cyril Ramaphosa, has formally signed legislation establishing a global minimum corporate tax rate of 15% for multinational corporations. This law is in line with a larger global pact backed by more than 140 nations that attempts to stop big businesses from evading taxes by using lower tax jurisdictions to hide their profits.

Key Details of the Legislation

• Minimum Tax Rate: The law establishes a minimum effective tax rate of 15% on the profits of multinationals with annual revenues exceeding €750 million (approximately $812 million) regardless of where their profits are generated

• Implementation Timeline: The new tax regime is set to take effect from January 1, 2024. It includes provisions for an income inclusion rule and a domestic minimum top-up tax, allowing South Africa to impose additional taxes on companies that report profits in countries with lower tax rates
• Expected Revenue Impact: The South African government anticipates that this reform will generate an additional R8 billion (about $500 million) in corporate tax revenue by the fiscal year 2026/27

This law’s main objective is to stop the “race to the bottom” in corporate taxation, in which nations vie to entice multinational corporations by lowering their tax rates. The initiative aims to guarantee that these corporations make equitable contributions to the economies in which they operate by implementing a worldwide minimum tax. In order to improve global tax justice and compliance, it also seeks to lessen the transfer of profits to low-tax jurisdictions.

This action is a component of a broader framework to address base erosion and profit shifting (BEPS) issues that was created by the Organization for Economic Co-operation and Development (OECD) and approved by a number of international forums, including the G20.