In 2013 the government introduced the domestic treasury management company (DTMC) regime to enable South African companies which are registered with the Financial Surveillance Department (FSD) of the South African Reserve Bank (SARB) to expand into the rest of Africa and abroad. The DTMC regime allows South African companies to establish one subsidiary as a holding company to hold African and offshore operations, without being subject to exchange control restrictions.

When the DTMC regime came into effect on 27 February 2013, a 'DTMC' was defined in Section 1 of the Income Tax Act as a company that:

  • is incorporated or deemed to be incorporated in South Africa;
  • has its place of effective management in South Africa; and
  • is not subject to exchange control restrictions by virtue of being registered with the FSD of the SARB.

Several tax benefits apply to a DTMC, including the following:

  • DTMCs may use their functional currency (as opposed to rands) as a starting point for currency translations for tax purposes, providing relief in respect of unrealised foreign currency gains or losses. This dispensation applies to taxable income, monetary items and capital gains items.
  • The local currency of any DTMC in respect of an exchange item – that is not attributable to a permanent establishment outside South Africa – will be the functional currency of that DTMC in terms of Section 24I. Accordingly, no gains or losses should arise in respect of, among other things, any unit of currency or any amount owing by or to that company in respect of a debt or a forward exchange contract denominated in the functional currency of such company.

The 2019 Budget explains that in 2017 the Income Tax Act was amended to remove the requirement that the company be incorporated in South Africa. However, the SARB's definition in Circular 5/2013 (also dealt with in Circular 7/2013) still includes the requirement that the company be incorporated in South Africa. As a result, the 2017 changes are not aligned with the SARB's requirements. It is proposed that the definition of a 'DTMC' be changed in Section 1 of the Income Tax Act to reintroduce the incorporation requirement.

As a result of the above and pursuant to the proposed amendment, in order for a company to qualify as a DTMC, it will once again have to be incorporated in South Africa and be effectively managed from South Africa.

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