The Global Minimum Tax Act will allow South Africa to tax big multinationals paying tax of less than 15% on their earnings in their home countries.
Multinational companies operating in South Africa will now have to pay a minimum global corporate tax rate of 15% after the president assented to the Global Minimum Tax Act published in the Government Gazette on 24 December.
This is part of government’s plans to implement a global minimum corporate tax to limit the negative effects of tax competition.
According to the preamble of the Global Minimum Tax Act, its purpose is to provide for the introduction of the Global Anti-Base Erosion (GloBE) Rules in South Africa and the imposition of Top-up Tax.
The GloBE Rules introduce a global minimum tax, designed to ensure that large multinational enterprises pay a minimum level of tax on their income arising in each jurisdiction where they operate, as part of the solution for addressing the tax challenges of the digital economy.
The Organisation for Economic Cooperation and Development (OECD), an international body that sets international standards for the promotion of economic growth and sustainable development, developed the GloBE Rules.
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Finance minister on Global Minimum Tax Act
Enoch Godongwana, minister of finance, said in his budget speech in parliament last year that multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15% regardless of where their profits are generated.
“The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/27. The draft Global Minimum Tax Bill aims to limit the race to the bottom of effective corporate tax rates for large multinationals, with countries competing to attract income by offering low tax rates and tax incentives.”
He said implementing the minimum tax in South Africa will bolster the corporate tax base. South Africa helped develop tax rules to address base erosion and tax challenges arising from the digitalisation of the economy as a member of the Steering Group of the OECD.
These rules are designed to limit the channels that multinationals use to shift profits from high- to low-tax countries, Godongwana said. The framework rests on two pillars and was endorsed by more than 135 countries in 2021.
According to the 2024 Budget Review, the first pillar focuses on the digital economy and the coherent tax treatment of multinationals. The framework will be implemented through a multilateral convention to ensure that the biggest and most profitable multinationals reallocate part of their profit to all countries where they sell their products and provide their services.
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Global Minimum Tax Act part of second pillar of minimum tax framework
The second pillar introduces the global minimum tax that ensures that any multinational with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15 %, regardless of where its profits are located.
Two measures effect this change, in the form of an income inclusion rule and a domestic minimum top-up tax for qualifying multinationals since 1 January 2025. According to National Treasury, the income inclusion rule will enable South Africa to apply a top-up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15%.
The domestic minimum top-up tax will enable Sars to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15 % in South Africa. For example, if a multinational company only pays 10% corporate tax on its earnings from South Africa in the country where it has its headquarters, Sars can now levy a tax of 5% on those earnings to ensure the company pays tax of 15% in the end.
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Global Minimum Tax Act very complex – expert
Associate Professor David Warneke, tax director at accounting firm BDO, said last year that the Act (then still a Bill) applies to large multinational enterprises with a consolidated turnover of at least €750 million in their consolidated annual financial statements, in at least two of the four immediately preceding financial years.
“Since this translates to roughly R15.3 billion at current exchange rates, there are not many South African headquartered multinational enterprises the rules will apply to However, the rules will also potentially apply to locally resident subsidiaries.”
He warned that the rules are extremely complex and therefore reporting thereon will be a costly endeavour for any enterprises within scope. “Because South Africa’s corporate income tax rate is 27%, at first blush it may appear that any locally resident subsidiaries of multinational entities headquartered elsewhere will fall outside any additional charge to tax since they will already have been subject to tax in South African at an effective rate of more than 15%.
“However, South Africa has various tax incentives and incentive regimes that may conceivably lower the effective tax rate payable to lower than 15%, such as the research and development incentive, the oil and gas taxation regime, the gold mining formula regime and the Special Economic Zones incentive regime.”
An eighteen-month period was granted for the filing of the first required returns and payment, and this means that the fiscus will only start collecting any tax payable in terms of the rules from 30 June 2026 onwards.
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Difficult to share optimism that Global Minimum Tax Act will bolster revenue
Warneke said that he finds it difficult to share National Treasury’s optimism expressed in the 2024 Budget Review that the implementation of these rules in South Africa will ‘bolster’ the corporate tax base.
“Indeed, it seems unlikely that South Africa will collect a significant additional amount of fiscal revenue from this source, relative to its total corporate fiscal collections.”
The SA Institute of Chartered Accountants (Saica) raised concerns about the Bill because it believed that the retrospective application of legislative enactments may be subject to legal challenge, as Treasury did not provide fair warning.
The Institute for Economic Justice and the Alternative Information and Development Centre also expressed their concern about the Act in submissions that the €750 million earnings threshold was too high and that multinational entities will not be bound by the rules because their earnings fall below this level.
The groups, supported by the Tax Justice Network and the #StopTheBleeding campaign, were also concerned that future amendments to the OECD would automatically become South African law without local oversight.
