2021 News • 2021-09-28
Interest deductions: Beware of the limitation in section 23M
Section 23M was introduced into the Income Tax Act No. 58 of 1962 (“the Act”) with effect from 1 January 2015 to limit interest deductions in certain circumstances where the creditor is not subject to South African tax on the interest income.
Accordingly, the amount of interest which may be deducted by a South African tax resident may be limited if the foreign lender is in a controlling relationship with the South African tax resident and the interest is not subject to tax in the hands of the non-resident lender. For example, this could be the case where a foreign holding company (“OffshoreCo”) provides funding to its South African subsidiary (“SACo”).