Currently South Africa does not impose a withholding tax in respect of interest paid to any offshore investors. However as from 1 July 2013, the Income Tax Act (58 of 1962) will impose a new withholding tax on interest paid by a resident person to or for the benefit of any foreign person. For withholding tax purposes a ‘foreign person’ is defined as any person that is not a resident of South Africa from an income tax perspective. A foreign person will be liable for withholding tax to the extent that the interest has been received or accrued from a South African source, however the resident payor will have the obligation to withhold the tax from the interest payment.
The legislation grants certain exemptions from the withholding tax on interest. Specifically exempt is interest that is paid to foreign persons by the South African government, any bank, the South African Reserve Bank, Development Bank of Southern Africa, Industrial Development Corporation or a headquarter company. An exemption is also granted in respect of listed debt, bills of exchange or letters of credit for interest incurred on the purchase price of goods imported into South Africa, interest payable by a regulated intermediary or in respect of a collective investment scheme. Interest generated by a permanent establishment of a foreign person that is situated in South Africa for a 12 month period preceding the date on which the interest is paid will also be exempt from the withholding tax.
As an anti-avoidance measure, interest paid to a foreign person will not be exempt from the withholding tax if that foreign person advanced an amount to a bank and that bank subsequently lends the amount to a person who is a related party to that foreign person. The bank advances the amount to that related party based on the amount advanced by the foreign person.
Generally the withholding tax rate on interest will be imposed at 15 per cent. A resident payor will not be obliged to withhold tax to the extent that the foreign person has submitted a declaration by the date of payment advising that it is either exempt or is subject to tax at a reduced rate in terms of the provisions of a double taxation agreement (“DTA”).
South Africa has concluded a number of DTA’s in various jurisdictions. We have set out below a table in respect of certain jurisdictions that we have considered and have indicated the taxing rights that arise in respect of interest generated from South Africa. The below listed DTA’s provide that interest attributable to a permanent establishment of a foreign person that is situated in South Africa will not qualify for a reduced rate.
|
COUNTRY |
TAX RIGHTS ALLOCATION |
WITHHOLDING TAX RATE |
| Australia | South Africa |
10% |
| Austria | Austria |
0% |
| Canada | South Africa[Interest is taxable only in Canada if interest is paid by the South African government or if the interest is paid to the Bank of Canada] |
10% |
| China | South Africa[Interest paid to the Chinese government, the Central Bank or any wholly owned financial institution owned by the government will be exempt from tax in South Africa] |
10% |
| Egypt | South Africa[Interest paid to or by either governments, and payments made to either the Central Bank of Egypt or the South African Reserve Bank will be exempt from tax in South Africa] |
12% |
| France | France |
0% |
| Germany | South Africa |
10% |
| India | South Africa[Interest paid to the Indian government, the Reserve Bank of India or any agency wholly owned by India will be exempt from tax in South Africa] |
10% |
| Ireland | Ireland |
0% |
| Japan | South Africa[Interest paid to the Japanese government, the Central Bank or any wholly owned financial institution owned by the government will be exempt from tax in South Africa] |
10% |
| Luxemburg | Luxemburg |
0% |
| Mauritius | Mauritius |
0% |
| Netherlands | Netherlands |
0% |
| New Zealand | South Africa[Interest paid to the government of New Zealand or the Central Bank of New Zealand will be exempt from tax in South Africa] |
10% |
| Portugal | South Africa[Interest paid to the Portuguese government or any entity wholly owned by the Portuguese government will be exempt from tax in South Africa] |
10% |
| Russian Federation | South Africa[Interest paid on a loan from the Russian government or Bank of Russia will be exempt from tax in South Africa] |
10% |
| Singapore | Singapore |
0% |
| Spain | South Africa[Interest is only taxable in Spain when the interest is beneficially owned by the Spanish government, the interest is in connection with the sale of merchandise or equipment, or the interest is paid on a long term loan granted by a Spanish bank] |
5% |
| Switzerland | South Africa |
5% |
| United Kingdom | United Kingdom |
0% |
| USA | USA |
0% |