South Africa proposes SEZ transfer pricing reforms, corporate tax changes in Medium-Term Budget Policy

South Africa has introduced three tax amendment bills following the October 2026 Medium-Term Budget Policy Statement. The proposals cover corporate tax, transfer pricing, provisional tax penalties, VAT administration, tax compliance and increases to key tax thresholds, with implementation dates ranging from 2026 to 2027.

South Africa’s National Treasury has delivered the Medium-Term Budget Policy Statement (MTBPS) to Parliament on 21 October 2026.  This package comprises three key amendment bills designed to implement the government’s tax policy, monetary indexation, and administrative adjustments announced in the 2026 budget:

• Taxation Laws Amendment Bill (B32—2026)
• Tax Administration Laws Amendment Bill (B33—2026)
  Rates and Monetary Amounts and Amendment of Revenue Laws Bill (B34—2026)

These bills outline proposed amendments to South Africa’s taxation laws and tax administration framework for 2026.  While formal enactment generally occurs in early 2027, the underlying provisions carry specific effective dates—many applying retroactively to dates in 2026 or taking effect at the start of upcoming assessment years.

The key measures in these bills are as follows:

Special economic zone (SEZ) corporate tax rules (B32—2026 & B34—2026)

From 1 January 2027, South Africa will replace the 20% threshold for connected-person transactions applicable to special economic zone (SEZ) qualifying companies with Section 31 transfer pricing rules. Under the amendment, transactions between an SEZ qualifying company and a resident connected party will be treated as affected transactions.

This will allow companies to retain the reduced 15% corporate tax rate, while connected-party transactions will be assessed under the arm’s length principle.

Taxable income may be adjusted where transactions do not comply with transfer pricing requirements.

Domestic treasury management companies (DTMCs) & CFC net income (B32—2026)

Previously, when a resident DTMC held participation rights in a Controlled Foreign Company (CFC) sharing the same foreign functional currency (such as USD), intermediate currency translations into South African Rands (ZAR) artificially inflated or distorted taxable income through phantom exchange gains or losses.

Section 9D(6) is amended to allow a DTMC sharing the same functional currency as its CFC to calculate the CFC’s net income directly in that functional currency without an intermediate ZAR conversion.

This applies in respect of foreign tax years of CFCs commencing on or after 1 January 2027.

Withdrawal of Section 23N and Section 23M alignment (B32—2026)

South Africa’s 2026 Taxation Laws Amendment Bill withdraws the previously deferred alignment of Sections 23N and 23M of the Income Tax Act, effective 20 August 2026. The change preserves Section 23N’s focus on interest deduction limits for reorganisation and acquisition transactions. It avoids unintended overlaps with Section 23M’s interest limitation rules for debts owed to non-taxable entities.

Extension of Section 37A rehabilitation funds to nuclear facilities (B32—2026)

From 1 January 2027, South Africa will extend Section 37A tax deductions beyond mining operations to holders of nuclear licences issued by the National Nuclear Regulator. Eligible taxpayers can deduct cash contributions to qualifying rehabilitation funds for nuclear facility closure, decommissioning and environmental restoration. Radioactive waste management facilities remain excluded and must be financed and managed separately under the polluter-pays principle.

Tax administration laws amendment bill highlights (TALAB) [B33—2026]

In addition to the substantive tax changes, TALAB introduces key administrative streamlined measures:

• Provisional tax underestimation penalty & cap: South Africa’s proposed amendments increase the taxable income threshold for using historical assessments to estimate provisional tax from R1 million to R1.8 million. Timely payment is now required to qualify for acceptable estimate tolerances and avoid underestimation penalties. Payments made more than one month after the due date may result in the estimate being based on actual payments or withholdings, unless the delay was not negligent or intentional. Fully exempt entities will also be excluded from the definition of a provisional taxpayer.
• Non-resident employers PAYE withholding: Clarifies that non-resident employers with a Permanent Establishment (PE) in South Africa are only required to withhold employees’ tax (PAYE) if the employee’s remuneration is borne by the South African PE.
• Unified VAT filing & payment deadlines: Eliminates the distinction between eFilers and non-eFilers, establishing a single deadline on the last business day of the month for all VAT vendors to submit returns and payments (effective 1 April 2027).
• Voluntary disclosure programme (VDP) & interest remission: Following SARS v Medtronic International Trading, the Tax Administration Act is amended to allow VDP applicants to apply for the remission of interest alongside their main voluntary disclosure application.
• Tax compliance status (TCS) protection: Ensures a taxpayer’s TCS remains reflected as “compliant” while a request for the remission of administrative non-compliance penalties under Section 215(3) is pending.
• Digital international carnets: Amends Section 38 of the Customs and Excise Act to accommodate electronic ATA Carnets for temporary imports/exports under World Customs Organisation (WCO) standards.

Rates, brackets, and monetary thresholds (B34—2026)

The Rates and Monetary Amounts Bill delivers broad inflation relief and updates key economic thresholds: