Compliance
How Global Minimum Tax and Ring-fencing Losses Are Changing South Africa’s Tax Landscape
New rules on ring-fencing and Global Minimum Tax (GMT) under Pillar Two are pushing companies and individuals to rethink cross-border operations—compliance stakes have never been higher.
By NomadicTax Research Team • 5-8 min read • August 17, 2026
## Introduction to GloBE Model Rule & Ring-Fence Loss Amendments
Global tax rules are evolving. Among South Africa’s recently enacted tax policies: amendments to **Section 20A of the Income Tax Act** altering how business losses are ring-fenced, and the implementation of the **Global Minimum Tax** (GMT) under the OECD's Pillar Two. Both impose tighter compliance demands on multinational groups and certain taxpayers. ([sars.gov.za](https://www.sars.gov.za/latest-news/changes-for-filing-season-2026/?utm_source=openai))
## Section 20A Loss Ring-fence Changes
- Previously, under **Section 20A**, a taxpayer could only **utilize assessed business losses** against taxable income above a certain **maximum marginal rate**, which used to be 45%.
- As of **years of assessment commencing on or after 1 March 2026**, the ring-fencing rule now applies once that taxpayer reaches **39% marginal rate** instead of waiting for the 45% bracket. ([sars.gov.za](https://www.sars.gov.za/latest-news/changes-for-filing-season-2026/?utm_source=openai))
### Impact on Loss-Making Businesses
- **Earlier triggering** of the limitation: Taxpayers start being limited in using losses once they reach 39% tax bracket—higher up on income scale. Might reduce ability to offset losses if income growth pushes them into those levels.
- Those whose assessment years **end before 1 March 2026** continue under the old rules.
## Global Minimum Tax (GMT) Pillar Two Regime
Effective for fiscal years beginning on or after **1 January 2024**, the GMT regime requires
- Multinational Enterprise (MNE) groups with consolidated revenue above **€750 million (~R15 billion)** to file a **Global Minimum Tax Return (GMT01)**, along with declaration and tax calculations.
- Payment of a **top-up tax** when income in any jurisdiction falls below the **15% minimum effective tax rate**.
- South Africa has the **Income Inclusion Rule (IIR)** and **Domestic Minimum Top-up Tax (DMTT)** to enforce compliance with the 15% floor. ([sars.gov.za](https://www.sars.gov.za/businesses-and-employers/government/government-connect-issue-35-june-2026/?utm_source=openai))
## Actionable Implications for Businesses and Multinationals
1. **Evaluate corporate structure & flow of profits**: If you're operating across borders, look at where revenue is earned vs taxed. If subsidiaries or branches in low-tax jurisdictions feature, you may owe top-up tax under GMT.
2. **Re-assess timing of using assessed losses**: Businesses approaching the 39% bracket must plan use of losses carefully—they’ll start being ring-fenced sooner.
3. **Stay compliant with GMT reporting**: Familiarize your teams with GMT01/GMT02 forms, keep data clean. Non-fulfillment may trigger penalties or reputational risk.
4. **Use international tax treaties & planning strategies**: DTAs, entity location, profit shifting, and tax credits become more important under GMT scrutiny.
## Practical Example
*MegaGroup Ltd*, operating in South Africa and abroad, earns large profits in high-tax jurisdictions but uses losses generated in earlier years. Under the new Section 20A rules, it may no longer offset large accumulated losses as freely once crossing the 39% marginal rate — limiting deductions.
Additionally, if *MegaGroup* has a subsidiary in a country where the effective tax rate is below 15%, **Top-up Tax** will represent incremental liability when consolidating under GMT.
## Summary & Best Practices
**High impact** changes demand proactive planning: understand where your business sits on the margin, track where revenues and taxes arise, keep strong tax reporting systems, and ensure treaty-based relief is correctly applied. The combination of ring-fencing earlier and GMT compliance may significantly alter the tax burden for cross-border and loss-absorbing firms.
**Category:** Compliance
**Author:** NomadicTax Research Team
**Read Time:** 6 min
**Published:** true