Management fees and other intra-group service charges are among the most common intercompany transactions in South Africa, and among the most frequently questioned by SARS. The rules are not complicated, but they require evidence: you need to show that a real service was provided, that it benefited the South African company and that the charge is arm’s length.
Key points
- Two questions apply to every service charge: was a service actually provided, and is the charge arm’s length?
- Shareholder activities, duplicated services and incidental benefits should not be charged.
- Most service charges are priced at cost plus a mark-up supported by benchmarking.
- The OECD simplified 5% mark-up applies only to qualifying low value-adding services and should not be assumed for everything.
- Evidence of the services is as important as the price.
The benefit test
Chapter VII of the OECD Transfer Pricing Guidelines asks whether the activity provides the recipient with economic or commercial value that an independent company would pay for, or would perform itself. If the answer is no, there is no service to charge for. SARS applies the same thinking under section 31.
What should not be charged
- Shareholder activities: work done for the parent as an owner, such as group consolidation, parent-level reporting and investor relations.
- Duplicated services: services the South African company already performs itself or buys from a third party.
- Incidental benefits: benefits that arise simply from being part of a group, such as a better credit rating.
Setting an arm’s length charge
Where a real service is provided, the charge is usually calculated as the cost of providing the service plus a mark-up. Getting this right means:
- Identify the costs: include the full cost of the people and resources involved, and separate pass-through costs that should not attract a mark-up.
- Allocate fairly: where services benefit several group companies, use an allocation key that reflects how they benefit, such as headcount, revenue or users.
- Apply a supported mark-up: base the mark-up on a benchmarking study of comparable service providers.
The low value-adding services approach
The OECD offers an elective simplified approach for low value-adding support services, such as routine accounting, payroll and IT support, using a 5% mark-up on a pooled cost base. In mid-2026 the OECD consulted on revisions to Chapter VII, confirming that the simplified approach remains largely unchanged but that the 5% mark-up is not a floor or benchmark for other services. Do not assume SARS will accept the 5% approach without support: confirm the position for your facts and keep the documentation the approach requires.
The evidence SARS expects
- A signed services agreement describing the services and pricing. See what an intercompany agreement should include.
- Descriptions of the services actually provided during the year
- Proof of delivery: reports, emails, meeting minutes, timesheets or system access logs
- The cost base, allocation keys and calculation of the charge
- Evidence of the benefit to the South African business
- Invoices that match the agreement and the calculation
Other South African considerations
- Deductibility: beyond transfer pricing, the fee must also meet the general deduction requirements of the Income Tax Act.
- Exchange control: payments to non-resident group companies may need to meet exchange control requirements through your authorised dealer.
- ITR14 disclosure: management fees must be disclosed correctly in the transfer pricing sections of the return.
If SARS is already questioning your service charges, our guide to identifying and mitigating transfer pricing risk explains where to focus. For a tailored review, Impact can help design a defensible intra-group services policy.
Frequently asked questions
Can a South African company charge management fees to foreign subsidiaries?
Yes, and SARS will expect it to. If the South African parent provides services to foreign group companies, it should charge an arm’s length fee, otherwise SARS may impute income.
Is a fixed annual management fee acceptable?
Only if it can be shown to be arm’s length. A fee linked to the actual cost of services plus a supported mark-up is usually easier to defend.
What is the biggest mistake with management fees?
Charging without evidence. A well-calculated fee with no proof that services were provided is still vulnerable.
