Author: Magda Snyckers and Liesl Visser Over the past few years we have seen the introduction of various withholding taxes to the South African tax system. We set out below a high-level summary of the various withholding taxes that are levied in terms of the Income Tax Act 58 of 1962 (the “Act”), their rates and the withholding and reporting obligations. Apart from the dividends tax, these withholding taxes primarily apply to persons that constitute non-residents for South African tax purposes. However, tax residents should also take note since they could have a withholding obligation which may result in them having a secondary tax liability.
Category: Withholding Tax
The introduction of withholding tax on interest – when is interest due and payable?
Author: Nicolette Smit and Chris de Bruyn With effect from 1 March 2015, withholding tax on interest will be levied at a rate of 15% in respect of interest that is paid by any person to or for the benefit of any foreign person, to the extent that the interest is regarded as having been received or accrued from a South African source. For purposes of the withholding tax, interest will be deemed to be paid on the earlier of the date on which the interest is paid or becomes due and payable. The phrase ‘due and payable’ is not defined in the Income Tax Act 58 of 1962 (“the Act”) nor does the Explanatory Memorandum issued by the South African Revenue Service (“SARS”) in respect of the Taxation Laws Amendment Bill of 2013 (which was promulgated as the Taxation Laws Amendment Act, 43 of 2014) provide any guidance in Read More …
Meaning of “due and payable” for purposes of the Interest Withholding Tax provisions
As of 1 March 2015, interest payable by South African residents to or for the benefit of foreign persons may be subject to Interest Withholding Tax (IWT) at a rate of 15%. Exempt from IWT will be interest payable by, amongst others, the government of South Africa (in the national, provincial and local sphere), any bank, the South African Reserve Bank, the Development Bank of South Africa and the Industrial Development Corporation. Interest payable on so-called ‘listed debt’ is also exempt from IWT regardless of the nature of the person paying the interest. In addition, the IWT provisions make allowance for a reduction in the rate of IWT where the provisions of a Double Taxation Agreement so provide. The IWT provisions will be applicable to interest that is paid or becomes due and payable on or after 1 March 2015.
Two Noteworthy Tax Changes Effective from January 1st, 2015
Authors: Dawid van der Berg and Roxanna Nyiri, Tax, BDO South Africa Johannesburg, 17 December 2014 – Two noteworthy taxation amendments come into effect on the 1st of January 2015. The first tax amendment relates to the deductibility of interest paid to a person who is not liable to tax in South Africa, for example non-residents. The section in question, section 23M of the Income Tax Act, intends to protect the South African tax base by limiting such deduction. Views have been expressed that the limitation could deter foreign direct investment into South Africa. For example, local subsidiaries could suffer higher effective tax rates as a result.
Rebates on foreign withholding taxes paid
Author: Manri Oosthuizen (Moore Stephens) An explanation of rebates on foreign withholding taxes paid in accordance with 6quin of the Income Tax Act 58. It is a common occurrence in many South African businesses to transact with customers outside our borders, especially with customers in the rest of Africa. In most of these transactions, in particular services such as IT-related and management, tax is withheld by the customer in the African country. Tax withheld is based on the invoice amount of the transaction with rates as high as 25 percent.
Binding Private Ruling 181 – Ruling on withholding tax on interest and the application of a treaty
The South African Revenue Service (SARS) issued Binding Private Ruling No 181 (Ruling) on 4 November 2014, which deals with the application of a treaty for the avoidance of double taxation to withholding tax on interest. The applicants were three companies incorporated and tax resident in South Africa, who intend to construct wind farms in South Africa.
Interest withholding tax – are you ready for 1 January 2015?
In just over 3 months’ time, the interest withholding tax (“IWT”) will come into effect – more than four years after the initial release of legislation governing the IWT provisions. The provisions appear to be fairly straightforward and the parties likely to be affected by the IWT should by now be prepared for the impact which the IWT will have. However, there are aspects of the law which might not have been fully considered to date. A few of these aspects are explored below.
Online foreign gaming providers required to register for VAT under new legislation – even if they are not registered under the National Gambling Act
New legislation requiring foreign suppliers of electronic services to register for Value Added Tax (VAT) in South Africa may prove to be challenging for those providing online gaming services – especially as the supply of these services is not yet fully included in South Africa, says PwC. “Recent changes to the VAT legislation place a VAT registration obligation on these suppliers, irrespective of whether they are registered under the National Gambling Act of 2004,” says Gerard Soverall, PwC Head of Indirect Tax for Gauteng. The new legislation requiring foreign suppliers of electronic services to register for VAT in South Africa as soon as the total value of such supplies reaches R50 000 (about USD 4 500) came into effect from 1 June 2014.
Multinational organisations operating in Africa need to consider the tax treatment of their transactions upfront – or face significant tax exposure, warns PwC
Multinational organisations operating in Africa face significant tax exposure and risks in the form of withholding taxes. “Multinationals considering doing business on the continent need to consider the potential tax treatment of their transactions upfront,” says Elandre Brandt, an International Tax Partner at PwC and Head of the Africa Tax Desk based in Johannesburg. “Contractual terms may have a significant impact on the applicable withholding tax, and may range from anything between five percent to as much as 30% of the gross amount of the transaction,” warns Brandt. “Planning for a withholding tax liability allows for certainty regarding the tax liability associated with any commercial transaction.”
Does South Africa currently have a withholding tax on interest?
That, one might imagine, should be an easy question to answer –after all, what does the Income Tax Act 58 of 1962 say in regard tothe date on which statutory provisions for the imposition of a withholding tax on interest come into effect? However, anyone who actually triesto find the answer to that question for himself, rather than relying on someone else’s conclusions in thisregard, will find himself following a tortuous path of legislation, made more complicated by the enactment of amending legislation that was repealed before it took effect.