Paragraph 64B (Eighth Schedule) – Disposal of equity shares in foreign companies

64B. Disposal of equity shares in foreign companies

(1) Subject to subparagraph (4), a person other than a headquarter company must disregard any capital gain or capital loss determined in respect of the disposal of any equity share in any foreign company (other than an interest contemplated in paragraph 2(2)), if-

(a) that person (whether alone or together with any other person forming part of the same group of companies as that person) immediately before that disposal-

(i) held an interest of at least 10 per cent of the equity shares and voting rights in that foreign company; and

(ii) held the interest contemplated in subitem (i) for a period of at least 18 months prior to that disposal, unless-

(aa) that person is a company;

(bb) that interest was acquired by that person from any other company that forms part of the same group of companies as that person; and

(cc) that person and that other company in aggregate held that interest for more than 18 months; and

(b) that interest is disposed of to any person that is not a resident, other than-

(i) a controlled foreign company or any person that is a connected person in relation to the person disposing of that interest;

(ii) a non-resident company that formed part of the same group of companies as the company disposing of the shares at any time during a period of 18 months before that disposal; or

(iii) a non-resident company, the shareholders of which, immediately after the disposal, are substantially the same as the shareholders of any company in the group of companies disposing of the shares,

for an amount that is equal to or exceeds the market value of the interest.

[Item (b) substituted by section 117(1) of Act 25 of 2015 and by section 42(1)(a) of Act 17 of 2023 effective on 1 November, 2023 and applicable in respect of any disposals on or after that date]

(2) Subject to subparagraph (4), a headquarter company must disregard any capital gain or capital loss determined in respect of the disposal of any equity share in any foreign company (other than an interest contemplated in paragraph 2(2)) if that headquarter company (whether alone or together with any other person forming part of the same group of companies as that headquarter company) immediately before that disposal held at least 10 per cent of the equity shares and voting rights in that foreign company.

(3) Paragraph 8(b) applies in respect of any capital gain determined in respect of any disposal of any equity share in any foreign company on or before 31 December 2012 by a person which is or was disregarded in terms of subparagraphs (1) and (4) in any year of assessment, if-

(a) the foreign company prior to that disposal was a controlled foreign company in relation to that person or in relation to any other company in the same group of companies as that person;

(b) the equity share in that foreign company was disposed of to a connected person in relation to that person either before or after that disposal;

(i) disposed of that equity share for no consideration or for consideration which does not reflect an arm’s length price, other than a distribution contemplated in subitem (ii);

(ii) disposed of that equity share by means of a distribution made unless-

(aa) that distribution was made to a company that forms part of the same group of companies as that person; or

(bb) the full amount of that distribution was included in the income of a holder of shares in that foreign company or would, but for the provisions of section 10B(2)(a) or (b), have been so included; or

(iii) disposed of any consideration where that consideration was received or accrued from the disposal of that equity share (or any amount received in exchange therefor) in terms of any transaction, operation or scheme of which the disposal of the equity share forms part-

(aa) for no consideration or for consideration which does not reflect an arm’s length price (other than a distribution contemplated in subsubitem (bb)); or

(bb) by means of a distribution by a company, unless the full amount of that distribution was included in the income of a holder of shares in that company or would, but for the provisions of section 10B(2)(a) or (b), have been so included; and

[Subsubitem (bb) amended by section 144 of Act 31 of 2013 and substituted by section 84 of Act 23 of 2018 effective on 17 January 2019]

(d) that foreign company ceased, in terms of any transaction, operation or scheme of which the disposal of the equity share forms part, to be a controlled foreign company in relation to that person or other company in the same group of companies as that person (having regard solely to any rights contemplated in paragraph (a) of the definition of ‘participation rights’ in section 9D).

(4) A person must disregard any capital gain determined in respect of any foreign return of capital received by or accrued to that person from a “foreign company” as defined in section 9D (other than an interest contemplated in paragraph 2(2) where that person (whether alone or together with any other person forming part of the same group of companies as that person)—

(a) holds an interest of at least 10 per cent of the total equity shares and voting rights in that company; and

(b) has held the interest referred to in item (a) for at least 18 months prior to the receipt or accrual of that foreign return of capital.

[Subparagraph (4) substituted by section 42(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of foreign returns of capital received or accrued on or after that date]

(5) The provisions of this paragraph do not apply in respect of any capital gain or capital loss determined in respect of-

(a) the disposal of any equity share in any portfolio contemplated in paragraph (e) of the definition of ‘company’ in section 1; and

(b) any distribution contemplated in subparagraph (4) by any portfolio contemplated in item (a).

(6) This paragraph must not apply in respect of any capital gain or capital loss determined in respect of the disposal of any share in a controlled foreign company to the extent that the value of the assets of that controlled foreign company is attributable to assets directly or indirectly located, issued or registered in the Republic.

[Subparagraph (6) added by section 51(1) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of any disposal on or after that date]