Bookmark : https://www.exceed.co.za/news/sa-s-withholding-tax-regime-withholding-tax-on-interest/?id=12&entryId=217
Skip to : [Content] [Navigation]
  • Big enough to count, small enough to care

    Big enough to count, small enough to care
  • Integrity forms the backbone of our business

    Integrity forms the backbone of our business

News

Back to News

SA’s withholding tax regime: withholding tax on interest

24 Jun 2014

Judy SnymanGovernments often have difficulties collecting income tax on foreign residents’ earnings from business activities in the source countries. In addressing these difficulties, withholding taxes on payments to foreign persons are frequently imposed. This article gives a brief overview of the new withholding tax on interest that will come into effect in January 2015.

South Africa has recently introduced and amended a number of withholding taxes. The following are the withholding taxes levied in the country:

  1. Withholding tax on payments to foreign entertainers and sportspersons (from 28 July 2006);
  2. Withholding tax on payments to foreign sellers of immovable property (from 1 September 2007);
  3. Withholding tax on dividends (from 1 April 2012);
  4. Withholding tax on royalties (from 1 July 2013);
  5. Withholding tax on interest (from 1 January 2015); and
  6. Withholding tax on service fees (from 1 January 2016).

The withholding tax on interest was introduced by the Taxation Laws Amendment Act 31 of 2013 and will be payable from 1 January 2015. Essentially, it amounts to a withholding tax at a fixed rate of 15% of the amount of any interest received by, or accrued to, any foreign person from a source within South Africa. The withholding tax is a final tax, which means that there will be no need to submit an annual return if this is the only income received by the foreign person. The foreign person cannot claim any expenditure or deductions against this income.

A number of exemptions from the withholding tax on interest include:

  • Interest paid to a foreign person by: the SA government in the national, provincial or local sphere; any bank; the SA Reserve Bank, the Development Bank or the Industrial Development Corporation (IDC); or any headquarter company (in respect of financial assistance as set out in section 31(1) of the Income Tax Act regarding transfer pricing);
  • Interest paid to a foreign person in respect of any listed debt;
  • Interest paid as contemplated in the Financial Markets Act to any foreign person that is a client (as defined);
  • Interest paid to a foreign natural person who was physically present in the country for a period exceeding 183 days during the twelve months prior to the date on which the interest is paid;
  • Interest paid on any debt claim which is effectively connected to a permanent establishment of a foreign person in South Africa, if that foreign person is registered as a taxpayer in South Africa.

There is no exemption for interest paid to a foreign person in respect of a so-called “back-to-back loan”, i.e. where a loan is granted to a person by a bank on the strength of an amount advanced by the foreign person to the bank. In such case, the interest paid by the bank to the foreign person will not be exempt from the withholding tax on interest.

Any tax treaties or double taxation agreements between South Africa and other countries may also have an impact on the application of the withholding tax provisions. Should a foreign person provide a declaration (in the form subscribed by SARS) that s/he is exempt from the withholding tax on interest or that s/he is, in accordance with a double taxation agreement, entitled to a lesser rate of withholding tax, the person making the payment does not have to withhold the withholding tax or, as the case may be, withhold an amount calculated at the applicable reduced rate.

As to the payment and recovery of the tax, the foreign person is ultimately liable for the withholding tax and must pay the tax by the last day of the month following the month during which the interest was paid. If, however, payment is withheld by a resident taxpayer, such resident taxpayer must submit a return and pay the tax to SARS, also by the last day of the month following the month during which the interest was paid.

The exemptions contained in sections 10(1)(h) and 10(1)(i) of the Income Tax Act in respect of interest received by a non-resident, still apply and will be taken into consideration in determining the withholding tax due to the non-resident.

•    For queries regarding withholding taxes or other tax-related matters, contact one of the tax advisors at our Stellenbosch office (tel 021 882 8140), or at our Johannesburg office (tel 010 125 0230)

    View Archives


    Johannesburg

    Tel: +27 (0) 87 985 0935
    infojhb@exceed.co.za

    London, UK

    Tel: +44 (0) 1784 439 955
    www.exceeduk.co.uk

    Somerset West

    Tel: +27 (0) 21 852 0382/4
    swest@exceedsw.co.za

    Cape Town

    Tel: +27 (0) 21 915 6666
    tygervalley@exceed.co.za

    Paarl

    Tel: +27 (0) 21 872 7118
    paarl@exceed.co.za