Foreign interest received by or accrued to a resident is subject to normal tax in South Africa.
Foreign dividends received by or accrued to a resident are generally subject to normal tax in South Africa. The following are some of the most important exemptions in respect of such foreign dividends received or accrued:
• Dividends which were declared by non-resident listed companies which are also listed on the JSE, provided that more than 10% of the total equity share capital in that listed company is at the time of the declaration of that foreign dividend held collectively by residents.
• Dividends declared by a foreign company where that person is a resident who owns at least 20% of the total equity share capital and voting rights in that company declaring the dividend.
The Act also makes provision for the exemption from normal tax of other foreign dividends received by or accrued to a resident, for example in specific circumstances where a South African connection is present or a controlled foreign company is involved.
Foreign dividends and foreign interest exemption
Foreign dividends and foreign interest received by or accrued to a resident are only exempt from tax up to an amount of R3 200. This exemption is applied in the following order:
• Foreign dividends
• Foreign interest.
Example 3 – Foreign dividend and foreign interest exemption
X, is a resident under the age of 65 years and received foreign dividends of R800 and foreign interest of R2 500 during the 2009 tax year. The exemption is calculated as follows:
The foreign dividend income will be exempt from tax as it is less than the R3 200 exemption.
The foreign interest income will be exempt up to the amount of R2 400, that is, R3 200 less R800 exemption in respect of foreign interest. The balance of foreign dividends of R100, that is, R2 500 less R2 400 exemption, will be included in X’s taxable income.
Note: Residents may claim a credit in respect of foreign taxes paid by them against their normal tax liability in South Africa in respect of the foreign dividends and/or interest subject to normal tax in South Africa.
Foreign rental income
All foreign rental income received by or accrued to a resident is subject to normal tax in South Africa. A description of the asset and physical address of the property must be furnished. Expenses such as bond interest, rates and taxes, insurance and repairs may be claimed as a deduction, subject to certain conditions.
Amounts received by or accrued to a resident, for the imparting of any scientific, technical or commercial knowledge, commonly known as “know-how” payments are subject to normal tax in South Africa. Furthermore, royalties and other “know-how” payments are deemed to be derived from a source within South Africa if it has been received by or accrued to a person by virtue of –
• the use, right of use or grant of permission to use in South Africa of –