Interest payments in foreign jurisdictions are often subject to a withholding tax on payments to non-residents.
This implies that non-residents would receive interest payments net of tax. In accordance with the Taxation Laws Amendment Act No. 31 of 2013, the South African Revenue Service (SARS) has introduced a withholding tax on interest at a rate of 15%, effective 1 January 2015, as per section 50(A) to 50(H) of the Income Tax Act. The legislation aims to align South African tax practices with international norms.
The legislation impacts interest payments that are either paid by South African companies/persons to non-residents, or interest received or accrued to non-residents from a source within South Africa. The primary purpose of the legislation is to subject interest payments due to non-residents from a South African source to a final tax. Section 50(D) of the Income Tax Act provides certain exemptions from withholding tax on interest. If any of these exemptions apply, such interest payments are not subject to a final tax, but are subject to normal income tax consequences.
While the beneficial owners are taxed, the companies paying the interest (or more practically the withholding agents as the Service Providers) are required to withhold and pay the tax to SARS on behalf of the ultimate recipients. The taxes withheld are payable to SARS on the last day of the month (e.g. May 2014), following the month during which the interest is paid (e.g. April 2014).
Some foreign investors will be exempt from withholding tax on interest and some may be eligible for a reduced tax rate. This is dependent on the Double Tax Agreements (DTAs) between South Africa and the foreign jurisdiction.
For more information on withholding tax on interest, please contact:
Gregory Naicker Ridhwaan Williams
+27(0)11 759 5371 +27(0)11 759 5446