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Johannesburg - This year's amendments to tax legislation have paved the way for the introduction of another withholding tax, this time on interest paid from a South African source to a non-resident.
Currently SA has a withholding tax on royalties paid to non-residents, and capital gains tax (CGT) liabilities on the sale of local property by a non-resident.
A withholding tax on dividends, which is to replace Secondary Tax on Companies (STC), will probably be introduced next year.
According to Doelie Lessing, tax director at Werksmans Attorneys, the tax laws currently provide for a near-blanket exemption for local interest earned by non-residents, subject to exceptions in limited instances. "This situation will turn around upon the amendments taking effect on 1 January 2013," says Lessing.
The near-blanket exemption provides that, in principle, SA exempts local interest earned by non-residents. The only exceptions will be in the case of non-residents who spend 183 days or more in South Africa, or have a permanent establishment (such as a branch) in South Africa.
The latest Taxation Laws Amendment Bill states that the withholding tax will be levied at a rate of 10%. It will be payable within 14 days after the end of the month during which the interest is received by the non-resident.
The withholding tax will not be applicable to debt instruments like government bonds; borrowings like those from SA-based headquarter companies in respect of arm's length loans; transactions involving dealer and brokerage accounts and collective investment schemes, other than in property.
The existing near-blanket exemption has not been amended, nor has it been repealed.
The 10% will also not apply to non-residents who are currently not eligible for the exemption, namely individuals spending in excess of 183 days per year in SA and non-residents conducting business through a local permanent establishment.
"Indications are that these non-residents will continue to be taxed at the normal tax rate applicable to them and not at the reduced 10% rate at which the withholding tax is levied," says Lessing.
Lessing adds that the new withholding tax does not fall within the structure of the current Income Tax Act.
"Withholding tax will be levied totally separately from normal tax and it will be interesting how this will be applied," she says. "Hopefully the explanatory memorandum on the act will shed more light on the issue."
National Treasury has also stated that it will only renegotiate tax treaties in terms of the new withholding tax with countries which have low tax jurisdictions. It is not clear which countries fall within this definition.
The situation with countries which have high tax jurisdictions (like France and the UK), which provide for a nil withholding rate, remains unchanged.
- Fin24.com
Currently SA has a withholding tax on royalties paid to non-residents, and capital gains tax (CGT) liabilities on the sale of local property by a non-resident.
A withholding tax on dividends, which is to replace Secondary Tax on Companies (STC), will probably be introduced next year.
According to Doelie Lessing, tax director at Werksmans Attorneys, the tax laws currently provide for a near-blanket exemption for local interest earned by non-residents, subject to exceptions in limited instances. "This situation will turn around upon the amendments taking effect on 1 January 2013," says Lessing.
The near-blanket exemption provides that, in principle, SA exempts local interest earned by non-residents. The only exceptions will be in the case of non-residents who spend 183 days or more in South Africa, or have a permanent establishment (such as a branch) in South Africa.
The latest Taxation Laws Amendment Bill states that the withholding tax will be levied at a rate of 10%. It will be payable within 14 days after the end of the month during which the interest is received by the non-resident.
The withholding tax will not be applicable to debt instruments like government bonds; borrowings like those from SA-based headquarter companies in respect of arm's length loans; transactions involving dealer and brokerage accounts and collective investment schemes, other than in property.
The existing near-blanket exemption has not been amended, nor has it been repealed.
The 10% will also not apply to non-residents who are currently not eligible for the exemption, namely individuals spending in excess of 183 days per year in SA and non-residents conducting business through a local permanent establishment.
"Indications are that these non-residents will continue to be taxed at the normal tax rate applicable to them and not at the reduced 10% rate at which the withholding tax is levied," says Lessing.
Lessing adds that the new withholding tax does not fall within the structure of the current Income Tax Act.
"Withholding tax will be levied totally separately from normal tax and it will be interesting how this will be applied," she says. "Hopefully the explanatory memorandum on the act will shed more light on the issue."
National Treasury has also stated that it will only renegotiate tax treaties in terms of the new withholding tax with countries which have low tax jurisdictions. It is not clear which countries fall within this definition.
The situation with countries which have high tax jurisdictions (like France and the UK), which provide for a nil withholding rate, remains unchanged.
- Fin24.com
