Telco Ltd., a company incorporated and managed in South Africa and engaged in
telecommunication services, is going to invest in China. Its Chinese operations
will be both manufacturing and providing services. Telco intends to penetrate
the Chinese market for telecommunication, and according to some market research
carried out before, the operations will be highly profitable within a couple of
How to structure Telco's investment in a tax effective manner?
Dividends paid by the Chinese subsidiary to the South African parent will not
trigger Chinese withholding tax if the South African investor qualifies as a
"foreign investment enterprise" under Chinese law. This is the case, among
others, if the Chinese company is wholly foreign-owned. Upon receipt of the
dividends by the parent in South Africa, additional South African corporate tax
may be due.
The channelling of the dividends to a group holding company, and subsequently
to the South African investor in such a way that South African tax due on the
dividend received, could be an interesting solution.
This could be achieved by structuring the investment through a Seychelles
group holding company established as a CSL (special license company) under
Seychelles law. The dividends received by this company are only subject to 1.5%
tax in the Seychelles.
Due to special provision in the treaty between the Seychelles and South
Africa, no further tax is payable in South Africa upon redistribution of the
dividends to the parent, if any. Therefore, the maximum tax burden is limited to
If this would be preferred, the dividends received in the Seychelles can, of
course, also be accumulated in the Seychelles.
A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation.
All of our consultants in our offices provide a Free Initial Consultation and will gladly assist with advice on how to approach your particular challenge.
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