What is the TLAB?
The Draft Taxation Laws Amendment Bill (“TLAB”) is the annual draft legislation that gives effect to the tax proposals announced in the February National Budget. After public comment and parliamentary hearings, it is usually finalised and enacted towards the end of the year, with most provisions applying from the following year of assessment. The 2025 Draft TLAB was released by National Treasury and SARS on 16 August 2025, accompanied by an Explanatory Memorandum and media statement.
Key Corporate Tax Changes in the 2025 Draft TLA
Section 8E: Hybrid Equity Instruments
- The biggest change of the Bill.
- Section 8E is being changed to adopt an IFRS-based test: if a share or instrument is classified (or would be classified) as a financial liability in the issuer’s financial statements, then dividends are deemed to be income (i.e. taxable, not exempt).
- This replaces the old term-based rules (such as 3-year redemption tests), which were often sidestepped in practice, and makes the section’s application significantly wider.
- Effective for years of assessment starting on or after 1 January 2026.
- Several related definitions (such as “date of issue” and “qualifying purpose”) fall away as a result.
Section 8EA: Third-Party Backed Shares
- Any dividend (or foreign dividend) in a year when a share is, or was, a third-party backed share is deemed income, closing sequencing loopholes.
- Effective 1 January 2026.
Definition of “Equity Share”
- The definition is being re-cast to ensure it works for foreign shares, not just South African resident companies.
- An equity share is now clearly defined as a share that participates beyond a fixed cap in dividends or returns of capital, regardless of whether the company is a local or a ‘foreign company’.
- Important for cross-border reorganisations and share-for-share relief.
- Effective 1 January 2026.
Carbon Tax Adjustments
- Phase 2 measures confirmed: higher rate for emissions above carbon budgets, extended allowances, and electricity price neutrality to 2030.
Other Key Corporate Tax Changes
- Bank regulatory capital (sections 8F & 8FA): (First Loss After Capital) FLAC instruments are excluded from deemed interest rules set out in the hybrid interest and hybrid debt anti-avoidance rules.
- Interest limitation (section 23M): clarification of the definition of interest (per section 24J). Effective 1 April 2026.
- Interest deduction (section 11G): clarified to override the general interest prohibition in section 23(b) i.e for private individuals.
- Corporate reorganisations & CISs (sections 42 & 44): roll-over relief curtailed where collective investment schemes are used.
- CFC & exit charge integrity (sections 9D & 9H): strengthened to prevent avoidance through foreign holding company structures.
- Other extensions:
- Urban Development Zone incentive (s13quat) extended to 2030.
- Energy efficiency savings incentive (s12L) extended to 2031.
What this Means for Business
- Preference share and hybrid funding: if it’s debt under IFRS, it’s debt for tax – expect dividends to be reclassified as taxable income.
- Reorganisations involving CISs: immediate tax consequences likely, as roll-overs are shut down.
- Cross-border shareholdings: revised “equity share” definition ensures foreign shares qualify appropriately.
- Banks and financial groups: FLAC instruments will be appropriately recognised.
- Timing: most measures apply from 1 January 2026.
In summary
The 2025 Draft TLAB represents a major shift in South Africa’s corporate tax landscape, particularly for funding structures using preference shares and other hybrids, which will now be judged by IFRS liability classification. Cross-border groups should carefully review their treasury, restructuring, and holding company arrangements in light of these changes.
As always, we’ll keep you updated as the Bill progresses through Parliament. If you would like to discuss how these changes may affect your group’s structures or financing, please get in touch with the Regan van Rooy team.
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