SARS recently issued a summary of the Withholding Tax on Interest (WTI) which mainly addresses practical issues relating to WTI. The WTI came into effect on 1 March 2015 (in respect of interest that is paid or that becomes due and payable from that date). We summarise the most salient points further on in this article. The summary is not intended to be comprehensive and does not deal with some of the complex technical issues contained in the WTI provisions.
The WTI is a final withholding tax charged at 15% on interest paid or that becomes due and payable (from 1 March 2015) by any person to or for the benefit of a foreigner, i.e. a non-resident from a source within South Africa. The foreigner is liable for the tax, but it must be withheld by the person making the interest payment to or for the benefit of the foreigner.
The WTI exempts certain receipts relating to the payer (the person liable for the interest); the instrument (the instrument giving rise to the interest); and the foreigner (the recipient of the interest).
Interest is exempt from WTI if it is paid to a foreigner by:
- The RSA Government (national, provincial or local sphere);
- Any bank, including the South African Reserve Bank (SARB), Development Bank of South Africa (DBSA) or the Industrial Development Corporation (IDC); or
- A headquarter company relating to financial assistance where the headquarter company directly
Interest is exempt from WTI if it is paid to a foreigner for:
- Listed debt, e.g. bonds listed on the Johannesburg Stock Exchange (JSE);
- Interest payable to any foreigner that is a client, to whom a regulated person provides securities services, acts as an agent for another person about those services in which case it will include the agent or exclude the other person, if the contractual arrangement between the parties shows this to be the intention.
The WTI exemptions based on the payer and the instrument above require no declaration.
A Foreigner is exempt from WTI if:
- It is a natural person who was in South Africa for a period of more than 183 days in total during the 12 months before the date when the interest is paid; or
- The debt claim for which interest is paid is effectively connected with a permanent establishment of the foreigner who is registered as a taxpayer in South Africa.
The foreign recipient exemptions do not apply unless the WTI Declaration (‘WTID’) has been submitted to the payer of the interest before payment of the interest is made. The payer must keep the WTID for five years. As with Dividends Tax, SARS prescribed the form of this declaration and it is the responsibility of the withholding agent to ensure that the declaration made by the foreign person is in the form as prescribed.
A reduced rate of tax or exemption may apply under an applicable Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion (DTA). The DTA may reduce the rate South Africa is allowed to charge, or even deny South Africa the right to tax the interest payments. The reduced rates or exemptions under a DTA do not automatically apply and require the WTID to be submitted to the payer of the interest prior to payment of the interest.
WTI can only be paid to SARS electronically via eFiling.
A withholding agent must submit the form WT002, “Declaration of Withholding Tax on Interest”, to SARS, which is a summary of the total of interest payments made and tax withheld during a month. The WT002 and the payment must be submitted to SARS before the end of the month after the month in which the interest was paid.
The WT002 and the tax withheld must be submitted from the end of April 2015. If the last day of the month is a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.
A reconciliation submission of all the WTI payments must be made for the year. An IT3(b) “Certificate of Income from Investments, Property Rights and Royalties” must be completed and submitted to the foreigner and SARS. Submission of the IT3(b)’s to SARS can be done using one of the Third Party Data Submission Platforms by following the guidelines for the submission of Third Party Data as set out in the Business Requirement Specification for the IT3 Data Submission. The reconciliation must be done half yearly (i) for the first six months of the year 1 March to 31 August – by 31 October; and (ii) for the second six months of the year 1 September to 28 February – by 31 May.
The first reporting period is due by the end of May 2016 for the 12 month period (year) ending in February 2016.