Interest on loans from foreign persons

By Mike Betts, Tax Partner Grant Thornton Cape From 1 January 2015, the interest paid or due to non-residents from a source within South Africa (SA) will be subject to a 15% withholding tax, according to sections 50A to 50H of the Income Tax Act (‘the Act’). These provisions do not affect interest paid by, amongst others, any sphere of government, or any SA bank and will most likely affect loans from foreign shareholders and from other group companies located beyond the borders of SA.

Changes in tax interest announced

As part of his 2013 Budget proposals, Minister Gordhan announced various changes to the tax treatment of interest. Firstly, as announced last year, the tax treatment of so-called ‘hybrid debt’ will be amended so as to re-characterise such debt as dividends. The main concerns in this area appear to be debt instruments that do not have a realistic possibility of being repaid in 30 years, or debt that is convertible into shares at the option of the issuer. Banks and insurers will be excluded from this re-characterisation treatment.