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Withholding tax on foreign interest paid and increase in rate of withholding tax on royalties paid

Friday, 23 January 2015   (0 Comments)
Posted by: Author: Grant Ward
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Author: Grant Ward (Moore Stephens)

Withholding tax on foreign interest paid and Increase in rate of withholding tax on royalties paid (effective 1 March 2015).

Areas that could be of significance to entities that receive finance from abroad, are Sections 50A – 50H that came into effect on 1 March 2015.

These sections deal with withholding tax on interest paid 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 South Africa. According to the new regime, withholding tax amounting to 15% of the interest payable will be required to be withheld and paid by the South African resident entity to SARS by the last business day of the month, following the month in which the interest is paid.

It is important to take note that interest is deemed to be paid on the earlier of the date on which the interest is paid or becomes due and payable. There are certain exemptions to these sections, the most important of which is where relief is provided in terms of Double Taxation Agreements that are in effect. A list of countries which have Double Taxation Agreements with South Africa is listed on the SARS website:(

Other Exemptions Include:

  • If the interest is in respect of any listed debt
  • If the interest is paid to a natural person who was physically present in South Africa for more than 183 days in the 12 months prior to the date on which the interest is paid
  • If the interest that is paid is in relation to a permanent establishment of a non-resident in South Africa, if that foreign person is registered as a taxpayer in terms of Chapter 3 of the Tax Administration Act.

If any of the exemptions above or relief as per Double Taxation Agreement are applicable, a written declaration must be made by the non-resident to inform the entity paying the interest of the exemption / reduced rate and must agree to provide details of any change in circumstances to the entity.

It is further stipulated that if an amount withheld by a person is denominated in a currency other than the
currency of South Africa, the amount withheld must be translated to the currency of South Africa at the spot rate on the date on which the amount was so withheld.

SARS will communicate the operational requirements such as tax returns and the submission thereof, in due course. In the meantime, taxpayers should take the required measures to determine whether or not these sections will be applicable to them and notify their foreign lenders.

Regarding "withholding tax on royalties”, please take note that the rate increased from 12% to 15% from 1 March 2015.

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