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Will a non-resident with various SA investments be subject to the withholding tax on interest?

Monday, 23 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a non-resident client; he resides and works in Angola for the last x years. He has money invested with the following institutions in RSA:

·         Bank - earning interest (up to now tax free)

·         CIS (Collective investment scheme)

·         Money Market and Bond Funds

In terms of the revised Income Tax legislation, will the interest payable/accruing to him be subject to the withholding tax from 01 January 2015?

A: South Africa does not currently have a double tax agreement with Angola. One will therefore only consider the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’) to determine if the interest will be subject to the withholding tax on interest provided for in Part IVB of the Act. It is assumed that the person is not ordinarily resident in South Africa. Sec 50B(1) of the Act is the charging section of the withholding tax on interest (which will apply from 1 Jan 2015) and states the following:

‘There must be levied for the benefit of the National Revenue Fund a tax, to be known as the withholding tax on interest, calculated at the rate of 15 per cent 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).’

From sec 50B(1), it is made clear that the withholding tax on interest will be levied on an amount paid by any person, therefore by a resident or non-resident, natural person or not, to any foreign person as long as the interest is received by or accrued to that foreign person from a source within the Republic. A ‘foreign person’ is defined in sec 50A of the Act as ‘... any person who is not a resident’.

Sec 9(2)(b) states that the following interest will be received by or accrued to a person from a source within the Republic:

‘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 Republic; or

      II.            is received or accrues in respect of the utilisation or application in the Republic by any person of any funds or credit obtained in terms of any form of interest-bearing arrangement.’ (own emphasis added).

Comments on the word ‘interest’

The definition of interest in section 24J(1), in paragraph (a) of that definition reads as follows:

‘‘interest’ includes the—

(a)    gross amount of any interest or related finance charges, discount or premium payable or receivable in terms of or in respect of a financial arrangement …’

A financial instrument is defined in section 1 as follows:

‘‘financial instrument’ includes -

(a)    a loan, advance, debt, bond, debenture, bill, share, promissory note, banker’s acceptance, negotiable certificate of deposit, deposit with a financial institution, a participatory interest in a portfolio of a collective investment scheme, or a similar instrument …’

Interest distributed from the collective investment scheme

The interest distributed by the collective investment scheme (as it is not one in property) is then, in terms of section 25BA(1)(a)(ii), deemed to have accrued directly to the holder of the participatory interest. 

The interest is therefore potentially subject to the withholding tax on interest, but the exemption in section 50D(3) may apply.  It reads as follows:

‘A foreign person is exempt from the withholding tax on interest if—

(a)    that foreign person is a natural person who was physically present in the Republic for a period exceeding 183 days in aggregate during the twelve-month period preceding the date on which the interest is paid; or

(b)   the debt claim in respect of which that interest is paid is effectively connected with a permanent establishment of that foreign person in the Republic if that foreign person is registered as a taxpayer in terms of Chapter 3 of the Tax Administration Act.’

Interest received from the South African bank

Sec 50D(1) determines that interest must be exempt from the withholding tax on interest in the following circumstance:

‘(a) if that amount of interest is paid to any foreign person—

(i)  by—

(aa) the government of the Republic in the national, provincial or local sphere;

(bb) any bank, the South African Reserve Bank, the Development Bank of Southern Africa or the Industrial Development Corporation...’

Therefore from the facts provided it would seem as if the interest paid from the SA bank would be exempt from the withholding tax on interest in terms of sec 50D(1)(a)(i)(bb) of the Act.


The interest received from the collective investment scheme may potentially be subject to the withholding tax on interest if the exemption in terms of sec 50D(3) of the Act does not apply. Interest received from a South African bank will be exempt from the withholding tax on interest in terms of sec 50D(1)(a)(i)(bb) of the Act.

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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