South Africa: Proposal to apply official rate of interest rule to loans to trusts

Interest on loan lower than official rate of interest treated as donation by lender to trust

The South African Revenue Service (SARS) on August 31, 2024, issued the Draft Taxation Laws Amendment Bill, which proposes an amendment that would stipulate that as of January 1, 2025, to the extent a trust incurs interest on a loan at an interest rate lower than the “official rate of interest” (determined after taking any transfer pricing adjustments into consideration), the difference is deemed to be a donation made by the lender to the trust (referred to as the “official rate of interest rule”).

For purposes of this rule, the “official rate of interest” is defined as:

In the case of a loan denominated in ZAR, a rate of interest equal to the South African repurchase rate plus 100 basis points
In the case of a loan denominated in any other currency, a rate of interest that is the equivalent of the South African repurchase rate applicable in that currency plus 100 basis points

Read a November 2024 report prepared by the KPMG member firm in South Africa

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South Africa: Proposal to apply official rate of interest rule to loans to trusts

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