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Withholding tax on interest

30 Mar 2015

Sunel LouwFrom 1 March 2015, any person paying interest to, or for the benefit of, a foreigner from a source within South Africa is obliged to withhold 15% in tax. Classified as a final tax, there are however, exemptions.

The following exemptions are applicable:

An amount of interest is exempt if it is paid to a foreigner by:

  • the Government of the Republic (national, provincial or local sphere),
  • any bank, including the South African Reserve Bank (SARB), Development Bank of South Africa or Industrial Development Corporation, or
  • a headquarter company relating to financial assistance where the headquarter company directly or indirectly holds 10% of the equity and voting rights.

An amount of interest is exempt if it is paid to a foreigner for:

  • listed debt, e.g. bonds listed on the Johannesburg Stock Exchange (JSE),
  • interest payable to any foreigner that is a client, to whom a regulated person provides securities services, acts as an agent for another person about those services in which case it will include the agent or exclude the other person, if the contractual arrangement between the parties shows this to be the intention.

A foreigner is exempt from withholding taxes if:

  • he/she is a natural person who lived in South Africa for a period of more than 183 days in total during the 12 months prior to the date on which the interest is paid; or
  • the debt claim for which interest is paid is effectively connected with a permanent establishment of the foreigner who is registered as a taxpayer in South Africa,
  • he/she submitted a Withholding Tax on Interest Declaration (WTID)  to the payor of the interest before payment of the interest has been made.

A foreigner can also qualify for a reduced rate in terms of Double Tax Agreements. The foreigner should submit a WTID to the payor with the necessary information regarding the reduced rate before payment is made.

Declarations and payment

Withholding tax on interest can only be paid to SARS electronically via eFiling by completing the WT002 form. The payment and WT002 form have to be submitted to SARS before the end of the month following the month in which the interest was paid.
 
Reconciliation submissions

The exemptions relating to the payor or the instrument, as described above, require no reconciliations . In all other cases a reconciliation submission of all the withholding tax payments must be made for the year.

An IT3(b) Certificate of Income from Investments, Property Rights and Royalties has to be completed and submitted to both SARS and the foreigner. The deadlines of the biannual SARS submission, which can be done via one of the third-party data submission platforms, are:

  • for the first six months of the year (1 March to 31 August): 31 October; and
  • for the last six months of the year (1 September to 28 February): 31 May

 

Article written by Sunel Louw of Exceed (Cape Town) Inc, Tygervalley. For more information please contact them on 021 915 6666

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