South Africa proposes more rigid tax rules on hybrid equity instruments, expanding the scope and taxing dividends as income from 1 January 2026.
The South African National Treasury has proposed changes to section 8E of the Income Tax Act to strengthen anti-avoidance rules for hybrid equity instruments.
Under the proposed amendments, the definition of a “hybrid equity instrument” would expand to include any share or financial instrument that is, or would be, classified as a financial liability under IFRS in the issuer’s annual financial statements.
The amendments also remove the long-standing three-year redemption period test, bringing longer-maturity, debt-like instruments within the scope of the rules. Dividends paid on such hybrid instruments would be reclassified as income and taxed in the hands of the investor.
These changes are set to take effect on 1 January 2026 and will apply to all assessment years commencing on or after that date.
