COST-TO-COMPANY CONVERSION WITH FLEXIBLE BENEFITS

As trusted specialists in reward structuring, we deliver Cost-to-Company (CTC) Conversion Projects that go far beyond traditional implementations. Our offering integrates advanced tax optimisation, seamless employee experience, and robust business case modelling—ensuring your transition is not only fully compliant, but also aligned with best-in-class remuneration practices.

Whether you’re converting from a basic-plus structure or introducing flexible benefits for the first time, we deliver a tailored, strategic solution that meets your business and people needs.

LEARN MORE GET HELP WITH COST-TO-COMPANY CONVERSIONS

ABOUT COST-TO-COMPANY CONVERSIONS

WHY WE ARE DIFFERENT – AND BETTER

Most providers simply focus on shifting the pay structure. We go further—by embedding a set of key principles that underpin a successful, sustainable CTC implementation:

Cost neutrality for the business
No employee is worse off
Clear, data-driven business case for leadership approval

Our methodology, tools, and people are built to ensure zero ambiguity and maximum clarity—for executives, HR, payroll teams and every impacted employee.

YOUR CUSTOMISED CTC CONVERSION JOURNEY

We begin every engagement with the creation of a Testing Calculator—a bespoke, data-rich model incorporating your actual employee data. This model becomes the foundation for decision-making, executive approvals, and eventual employee rollout.

This testing model also becomes the backbone of your Package Structuring Tool (PST) used for implementation and future remuneration planning.

Your Testing Calculator Includes:

Current Remuneration Breakdown
Cost neutrality for the business.
Flexible Benefit Selection Page
Allows real-time comparisons and “what-if” scenarios
Travel Allowance Optimiser
Ensures no unexpected tax liabilities at year-end
Dummy Payslip Generator
Empowers offer making, cost disclosures, and employee benefit clarity

Tax Computation Detail
Line-by-line PAYE breakdown for internal and external validation
Allocation Schedule
Employee agreement to selected benefit structure
Old vs. New Comparison Sheet
Clear, side-by-side analysis of basic-plus vs. CTC outcomes

ADDITIONAL SUPPORT FOR A COMPLETE TRANSFORMATION

We don’t just hand over a tool—we support every step of your transformation journey, including:

Drafting of employee notices, contracts and rollout documents
Assistance with benefit design and broker negotiations
Group presentations and management briefings
Payroll setup and technical support
Guidance on incentive calculations and notional salary structuring

INTEGRATED EMPLOYEE TRAVEL SOLUTIONS

CTC conversion is the ideal opportunity to review employee travel policies. We provide:

Compliant travel allowances for employees
Optimised company car policies with cost control measures
Resolution of legacy vehicle usage or costing issues
Updated application of SARS fringe benefit rules

WHY ADD FLEXIBLE BENEFITS TO YOUR CTC MODEL?

A CTC model becomes truly effective only when coupled with flexible benefits. This enables employees to structure their packages to suit their personal needs, while the employer maintains control, efficiency, and compliance.

Key advantages:

Better control and predictability of employment costs
Simplified administration
Elimination of underused or irrelevant benefits
Full tax compliance and optimisation
Improved internal equity and benchmarking
Supports good governance and Retirement Fund Reform compliance
Aligns with King IV principles

Elevates your reward strategy to leading market practice

TESTIMONIAL

“I would recommend you to any firm. You did an excellent job.”

(Group Payroll Manager) – Altron Group Services

TRUST THE EXPERTS IN COST-TO-COMPANY CONVERSIONS

Let us help you implement a smart, compliant, and future-fit CTC model tailored to your workforce and business strategy.

CONTACT US

Controlled Foreign Companies –
South African Tax Considerations

Controlled Foreign Companies – South African Tax Considerations

South Africa’s tax system includes a Controlled Foreign Company (CFC) regime designed to address the taxation of income earned by foreign companies owned by South African tax residents.

Where a South African tax resident holds or controls a foreign company, they may be subject to income tax in South Africa on the CFC’s foreign income, even if that income has not yet been distributed. This is an anti-avoidance measure to prevent South African tax residents from utilising foreign companies in the avoidance of South African tax.

What is a Controlled Foreign Company?

A CFC is broadly defined in section 9D of the Income Tax Act, No. 58 of 1962, as any foreign company where more than 50% of the total participation rights or voting rights are directly or indirectly held or exercisable by one or more South African tax residents.

Where this threshold is met, and unless a specific exemption applies, the net income of the CFC must be included in the income of the South African resident(s) in proportion to their participation rights, and taxed accordingly.

Taxpayers who fail to accurately account for a CFC’s income risk audit or reassessment by SARS, especially in light of increased global transparency and data sharing through mechanisms such as the Common Reporting Standard.

Key Features of the CFC Regime

Deemed Income Inclusion: The net income of a CFC is deemed to accrue to South African resident shareholders.

High Tax Exemption: A CFC’s income may be exempt from inclusion if it is subject to tax in a foreign jurisdiction at a rate of at least 67,5% of the South African tax that would have been payable, had the CFC been a resident of South Africa.

Foreign Business Establishment (FBE) Exemption: Income earned through a “foreign business establishment” may be exempt where the CFC carries on substantial economic activity in its foreign jurisdiction. This is a factual enquiry and subject to rigorous scrutiny by SARS.

Passive Income Rules: Passive income (such as interest, royalties, rental, and certain capital gains) is more likely to be caught by the CFC rules, particularly where there is no meaningful economic substance abroad.

Anti-Avoidance and Transfer Pricing: The CFC rules operate alongside other anti-avoidance provisions, including transfer pricing rules and the general anti-avoidance rules, ensuring that offshore structures with little commercial rationale may still be taxed in South Africa.

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Place of Effective Management and Corporate Tax Residency in South Africa

South Africa follows a residence-based system of taxation, meaning that resident companies are subject to tax on their worldwide income.

In terms of section 1 of the Income Tax Act, No. 58 of 1962 (the Act), a company is regarded as a South African tax resident if it is either:

Incorporated, established or formed in South Africa; or

Has its place of effective management (POEM) in South Africa,

unless a double tax agreement (DTA) provides otherwise.

The concept of POEM is central to determining a company’s tax residency, particularly where cross-border structures are involved. It affects both foreign companies with South African involvement and South African-incorporated entities that may be managed from abroad.

What is Place of Effective Management?

Although not defined in the Act, POEM has been interpreted through South African case law, SARS guidance, and international commentary, particularly the OECD Model Tax Convention and Commentary thereto.

Broadly, POEM refers to the location where key management and commercial decisions necessary for the conduct of the entity’s overall business are made, in substance and not merely in form.

The determination of POEM is a factual enquiry, and is not limited to formalities such as the registered office, place of incorporation, or location of board meetings. Instead, it focuses on:

Who exercises strategic control, and

Where such decisions are actually made and implemented.

Application in Cross-Border Contexts

POEM plays a critical role in determining corporate tax residency in both inbound and outbound scenarios:

Inbound structures: Foreign-incorporated companies may be deemed South African tax residents if their effective management is located in South Africa, which is often the case where South African shareholders or directors run the business.

Outbound structures: South African-incorporated companies may be treated as non-resident for tax purposes if their POEM is demonstrably situated offshore. However, this outcome requires real substance and consistent governance in the foreign jurisdiction.

Both scenarios must be carefully evaluated in light of South African domestic law and any applicable DTA.

Interaction with Double Tax Agreements

Where a company is regarded as resident in both South Africa and another jurisdiction, the relevant DTA will typically contain a tie-breaker clause to resolve the conflict.

Most of South Africa’s DTAs allocate tax residency to the country where the company’s POEM is located. However, some newer treaties apply a Mutual Agreement Procedure (MAP), requiring the tax authorities of both states to determine residence based on additional factors.

Correct DTA application is essential to avoid dual residency exposure and to obtain treaty relief on dividends, interest, royalties, and other income.

Practical Implications for Companies

Incorrect or dual tax residency status can expose a company to:

Double taxation on the same income across two jurisdictions;

Withholding tax complications, including denied treaty relief on dividends, interest, and royalties;

Increased scrutiny by SARS, especially in outbound structures where POEM may be artificially shifted offshore; and

Transfer pricing risk where management functions are split across jurisdictions.

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Permanent Establishment – Tax Exposure in Cross-Border Contexts

As businesses expand across borders, one of the key tax risks they face is the inadvertent creation of a permanent establishment (PE) in a foreign jurisdiction. A PE may trigger foreign income tax exposure for a company even in the absence of incorporation or tax residency in that jurisdiction.

South African companies with offshore activities, or foreign companies with South African operations, must be aware of the PE concept, how it arises, and how it interacts with applicable Double Tax Agreements (DTAs).

What Is a Permanent Establishment?

A PE is generally defined in a DTA as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Common examples include:

A branch, office, factory, workshop, or place of management;

A building site or construction project lasting more than a specified period (often 6 to 12 months); or

The presence of a dependent agent who regularly concludes contracts on behalf of the foreign entity.

South Africa’s DTAs typically follow the OECD Model Tax Convention, and many incorporate updated provisions from the Multilateral Instrument (MLI), which narrows common avoidance strategies and expands the scope of PE risk.

Inbound vs Outbound Permanent Establishment Risk

Inbound PE risk: A foreign company may be taxed in South Africa if its activities in South Africa amount to a PE under the applicable DTA. This could occur where there is a fixed place of business, staff performing core functions, or a local agent concluding contracts on behalf of the foreign entity.

Outbound PE risk: A South African company operating abroad may face foreign tax exposure if it is deemed to have created a PE in the foreign jurisdiction, for example through a warehouse, a project office, or local contractors under its control.

Even short-term or project-based activities can give rise to PE risks if not carefully managed and monitored.

Consequences of a Permanent Establishment Finding

If a PE is found to exist:

The host country gains taxing rights over the profits attributable to that PE;

The company may be subject to corporate income tax, VAT registration, and payroll compliance obligations in the foreign jurisdiction; and

Transfer pricing scrutiny may be triggered, especially in relation to intra-group transactions and profit attribution methods.

Non-compliance can result in penalties, double taxation, and reputational harm.

In a connected world, even limited physical or digital presence in a foreign country can create tax exposure. Managing PE risk is essential for international tax compliance and operational efficiency.

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Controlled Foreign Companies –
South African Tax Considerations

South Africa’s tax system includes a Controlled Foreign Company (CFC) regime designed to address the taxation of income earned by foreign companies owned by South African tax residents.

Where a South African tax resident holds or controls a foreign company, they may be subject to income tax in South Africa on the CFC’s foreign income, even if that income has not yet been distributed. This is an anti-avoidance measure to prevent South African tax residents from utilising foreign companies in the avoidance of South African tax.

What is a Controlled Foreign Company?

A CFC is broadly defined in section 9D of the Income Tax Act, No. 58 of 1962, as any foreign company where more than 50% of the total participation rights or voting rights are directly or indirectly held or exercisable by one or more South African tax residents.

Where this threshold is met, and unless a specific exemption applies, the net income of the CFC must be included in the income of the South African resident(s) in proportion to their participation rights, and taxed accordingly.

Taxpayers who fail to accurately account for a CFC’s income risk audit or reassessment by SARS, especially in light of increased global transparency and data sharing through mechanisms such as the Common Reporting Standard.

Key Features of the CFC Regime

Deemed Income Inclusion: The net income of a CFC is deemed to accrue to South African resident shareholders.

High Tax Exemption: A CFC’s income may be exempt from inclusion if it is subject to tax in a foreign jurisdiction at a rate of at least 67,5% of the South African tax that would have been payable, had the CFC been a resident of South Africa.

Foreign Business Establishment (FBE) Exemption: Income earned through a “foreign business establishment” may be exempt where the CFC carries on substantial economic activity in its foreign jurisdiction. This is a factual enquiry and subject to rigorous scrutiny by SARS.

Passive Income Rules: Passive income (such as interest, royalties, rental, and certain capital gains) is more likely to be caught by the CFC rules, particularly where there is no meaningful economic substance abroad.

Anti-Avoidance and Transfer Pricing: The CFC rules operate alongside other anti-avoidance provisions, including transfer pricing rules and the general anti-avoidance rules, ensuring that offshore structures with little commercial rationale may still be taxed in South Africa.

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