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FAQ - 24 August 2017

24 August 2017   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Is there withholding tax on interest from trust?

Q: As from 1 March 2015 interest from a South African source, paid to a non-resident is taxed at a final withholding tax rate of 15%. Does this apply to interest on loans received by a non-resident who has a loan account in a SA trust?

 

A: For purposes of the guidance that follows it was accepted that the individual concerned is a “person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the governments of the Republic and that other country for the avoidance of double taxation”.  If not resident in a treaty country, the individual is not ordinarily resident of the RSA. 

The individual would then also be a 'foreign person' – see section 50A(1) of the Income Tax Act (it means “any person that is not a resident”). 

In terms of section 50B(3) the withholding tax is a final tax.  So, if the interest was duly subject to the withholding tax, it will not again be included in the person’s taxable income. 

In terms of section 50B(1), the withholding tax on interest, calculated at the rate of 15% (unless the treaty provides for a lower rate) of the amount of any interest 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 or accrued from a source within the Republic in terms of section 9(2)(b).   A trust is ‘any person’ and in terms of section 9(2)(b), an amount is received by or accrues to a person from a source within the RSA if that amount constitutes interest as defined in section 24J where that interest –

(i) is attributable to an amount incurred by a person that is a resident, unless the interest is attributable to a permanent establishment which is situated outside the RSA; or

(ii) is received or accrues in respect of the utilisation or application in the RSA by any person of any funds or credit obtained in terms of any form of interest-bearing arrangement. 

Section 50D provides instances where the amount of interest paid by a specific entity (the government, banks, etc.) is exempt from the withholding tax on interest.  It makes no mention of a trust. 

 

2. Do I need to apply for SVDP for inheritance money received?

Q: My client has dual Italian /South African citizenship. He received an inheritance from his late father which was handed down to his father from his grandfather in Italy. This money was never sourced in South Africa, nor does any income accrue to my client in SA. Does this need to be disclosed in South Africa through the SVDP process?

 

A: We accept that the person is an individual who is ordinarily resident in South Africa and has a permanent home available to her in South Africa (or her personal and economic relations are closer (centre of vital interests) to the RSA).  In essence, she is deemed to be exclusively a resident of the RSA (for purposes of the treaty between the two countries).

It is outside the scope of the service offered by SAIT to its members to answer the question.  It is limited to guidance. 

However, at issue is not whether the funds were ‘sourced from SA’, but whether the assets were authorised.  In the guides issued by SARS and the SA Reserve Bank, specific mention is made of inheritances not declared to an authorised dealer in the RSA.  The other side of the application relates to the non-disclosure of the income (such as interest) earned on the unauthorised asset for tax purposes. 

Queries pertaining to the Exchange Control SVDP can be e-mailed to SARB-SVDP@resbank.co.za or contact can be made via telephone, the number being: +27 (12) 647 2243.

You can find more information on the SARS website at: http://www.sars.gov.za/Legal/VDP/Pages/default.aspx

 

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


 

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