Withholding Taxes – Extended to Service Fees
01 March 2013
Posted by: Stiaan Klue
Taxes – Extended to Service Fees
have been anticipating the introduction of a withholding tax on interest paid
to non-residents for a number of years now. The effective date for the
commencement of the withholding tax on interest will be further delayed from 1
July 2013 to 1 March 2014.
royalty withholding tax to be imposed at a rate of 15% (which is currently
imposed at a rate of 12%) will also be delayed until 1 March 2014.
significantly, it is proposed that a withholding tax, presumably at a rate of
15%, will be imposed on service fees paid to a non-resident (subject to the
applicable treaty relief). The withholding tax on service fees will also be
effective from 1 March 2014. It will be interesting to see how the legislature
defines "service fees"or "services"
to determine how far-reaching this amendment will be.
Lewis, senior associate, tax, Cliffe Dekker Hofmeyr
Reform – budget reaction
released a further Consultation Paper together with the Budget documentation.
The reform Consultation Paper is trying to bring together the strands of
thinking that were set out very clearly in the four papers released by the
National Treasury in September/October 2012.
a tax perspective the critical issues are that Government will proceed with the
implementation of tax preferred savings and investment accounts (along the
lines of the UK's ISA). All returns accrued on these accounts and any withdrawals
would be exempt from tax. The account would have an initial annual contribution
limit of R30,000 and a lifetime limit of R500,000, which it is intended to put
up in line with inflation. These new accounts will be introduced by April 2015.
present the current tax free interest income annual thresholds continue, but
with effect from 1 March 2013 is put up to R34,500 for individuals 65 years and
over, and from R22,800 to R23,800 for individuals below 65 years. These
thresholds will not be adjusted for inflation in future.
regard to individuals' contributions to pension and retirement annuity funds,
Treasury is planning to implement legislation, and it is not clear whether this
would be effective March 2014 or some time in 2015, in terms of which
employer's contributions will be treated as a fringe benefit. Individuals will
be permitted to deduct from their taxable income or their employment income up
to 27,5% for a contribution to such fund, up to a maximum of R350,000. Last
year they were considering having two different scales depending on your age,
and have obviously decided to streamline this with one flat rule.
is further proposed that the annuitisation requirements of pension funds will
start to apply to provident funds from a certain date.
balances in provident funds and the growth on these, will not be subject to
annuitisation. This requirement will not apply to provident fund members older
than 55 years at the date of implementation of the new legislation.
Government's goal is to reduce the complexity of the retirement system. It is
proposed that contributions in excess of the annual cap of R350,000 could be
rolled over to future years.
Consultation Paper indicates that the means test for the old age grant will be
phased out by 2016; and the de minimus requirement for annuitisation of
retirement funds will be raised from R75,000 to R150,000. It appears from the
executive summary that living annuities will be eligible for selection as a
default product from a retirement fund, provided that certain design tests set
out by the Treasury are met. Trustees that make commission free financial
advice available to members on retirement, paid for out of the fund, will be
given some legal protection in respect of the choice of default offered to
interesting point is raised under the heading "Taxpayers with multiple
sources of income." These people are often faced with high tax liabilities
on assessment, because of the aggregation of their incomes. Individual employers
and particularly pension funds are typically unaware that there are two or more
income streams for an employee or pensioner, and each
calculates the PAYE as if there was only one. Government will look to address
this during the course of the next year. They are considering either higher
levels of withholding by employers (but they acknowledge confidentiality as a
concern), holding employees responsible for the PAYE at a higher tax rate to
take into account the aggregation effect; SARS informing such taxpayers and
suggesting preventative measures, and possibly temporary relief in the case of
Morphet, Director, Tax, Cliffe Dekker Hofmeyr