New Withholding Tax on Cross-Border Services
15 January 2014
Posted by: Author: Graeme Palmer
Author: Graeme Palmer (Commercial
Department of Garlicke & Bousfield Inc)
The Income Tax Act, 1962 was
recently amended to provide for a new withholding tax on cross-border service
fees. According to the new law, a withholding tax of 15% must be levied
on the amount of any service fee that is paid by any person to or for the benefit
of any foreign person to the extent that the amount is regarded as having been
received by or accrued to the foreign person from a source within South Africa.
A foreign person is any person who
is not a resident. Service fees would be regarded as earned from a South
African source if the services in respect of which they are earned are rendered
in South Africa. This fee includes any amount that is received or accrued
in respect of technical, managerial, and consultancy services. It does
not, however, include services which are incidental to the imparting of any
scientific, technical, industrial, or commercial knowledge or rendering any
service in connection therewith.
The withholding tax is a final tax
where the person making payment to the foreign person withholds 15% of the
gross service fees. The person withholding the tax must submit a return
and pay the tax to SARS by the last day of the month following the month during
which the service fee is paid. The service fee is deemed to be paid on the
earlier of the date either when it is paid, or becomes due and payable.
A foreign person will be exempt from
the tax if:
is a natural person who is physically present in South Africa for a period
exceeding 183 days in aggregate during the 12 month period preceding the date
on which the service fee is paid;
service in respect of which the service fee is paid is effectively connected
with a permanent establishment of that person in South Africa;
service fee constitutes remuneration paid by an employer to an employee.
Persons liable to withhold the tax
can be relieved of such obligation only if they receive a declaration that,
either the foreign person is exempt from the tax, or is subject to relief as a
result of the application of a double taxation agreement.
The withholding tax will
come into effect and apply to service fees that are paid or become due and
payable on or after 1 January 2016.