Article by Professor Emil Brincker


The South African Government was traditionally quite reluctant to impose withholding taxes, especially in an attempt to encourage investment into South Africa. Of late, however, it seems that it has been realised that withholding taxes is an effective method of collecting taxes especially in the context of non-residents of South Africa deriving their profits from transactions linked to South Africa.

Currently, there are three types of withholding taxes, namely –

  • withholding tax on royalties;
  • withholding tax on the sale of immovable property;
  • withholding tax on foreign entertainers.

It should be noted that no withholding tax is levied on the payment of dividends by South African companies to non-resident shareholders. However, a company declaring a dividend is liable to pay a tax known as secondary tax on companies ("STC") at the rate of 12,5% of the amount declared. This tax is payable whether or not the shareholder is a South African resident or not. It is not a withholding tax in the true sense of the word, as the liability to pay STC is not levied on the recipient of the dividend, but the company that declares the dividend. For treaty purposes STC has been acknowledged to be a tax on profits governed by the provisions of article 7 of the model OECD treaty as opposed to being seen to be a withholding tax on dividends which would otherwise have been subject to limitations as to the percentage or otherwise depending on the wording of the treaty. In other words, the rate of 12,5% payable in respect of STC cannot be reduced to the extent that a treaty provides for a lower withholding tax in respect of the declaration of dividends to non-resident shareholders.

The problem of withholding taxes is that a foreign tax credit may not always be available. For this reason taxpayers would generally prefer not to be seen to be subject to any withholding tax.


Royalties is subject to withholding tax at a flat rate of 12% of amounts received by or accrued to a person (other than a South African resident or a controlled foreign company) by virtue of –

  • the use or the right of use in South Africa, or the grant of permission to use in South Africa any patent, design, trademark, copyright or any model, pattern, plan, formula or process or any other property or right of a similar nature. It equally applies if a motion picture film, video tape, sound recording or advertising matter is made available in South Africa. The withholding tax is applicable irrespective of where the subject matter thereof was produced or whether payment is to be made to a person resident inside or outside South Africa.

Withholding tax is also levied on payments made for the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information for use in South Africa. It is not payable in respect of the use of scientific equipment (in terms of the provisions of the older treaties entered into by South Africa). Once again the requirement is that the knowledge or information should be made available for use in South Africa, irrespective of where it is obtained and irrespective of where payment is to be made.

The withholding tax on royalties is not payable by a foreign company carrying on branch operations in South Africa and the amount of the royalty is otherwise subject to South African tax.

The obligation to pay the withholding tax rests on the person who incurs a liability to pay the royalty or the person who receives payment of an amount on behalf of the non-resident. The withholding tax is payable within 14 days after the end of the month during which the liability is incurred or the payment is received, as the case may be. The payment is a final payment on behalf of the non-resident. To the extent that the licensee pays the withholding tax, he is entitled to recover the amount so paid from the non-resident or retain it out of any money that may be in his possession. If the parties have contractually agreed that the non-resident is to receive the royalties free of any withholding taxes, the licensee would have to gross up the relevant payments so as to place the non-resident in the same position it would have been in had the withhold taxes not been levied.

Sale of Immovable Property by Non-Resident Sellers

Recently a new section was inserted into the Income Tax Act to the effect that a withholding tax is payable from payments made to non-resident sellers of immovable property. The withholding tax is equal to –

  • 5% if the seller is a natural person;
  • 7,5% if the seller is a company;
  • 10% if the seller is a trust.

The withholding tax is payable by the purchaser. It is indicated that the withholding tax is an advance in respect of the seller’s liability for normal tax and is thus not a final tax. Generally the seller would be subject to capital gains tax on the disposal of the immovable property at the rate of 10% (if he is a natural person) or 14,5% (if he is a company). The amount should be paid within 14 days after the date on which the amount was withheld if the purchaser is a resident, otherwise 28 days if the purchaser is not resident.

If a purchaser knows or should reasonably have known that the seller is not a resident and fails to withhold the amount concerned, the purchaser is personally liable to pay the amount. In addition, the purchaser is also liable for interest and would be subject to a penalty equal to 10% of the amount.

An estate agent and a conveyancer who is entitled to any remuneration in respect of services rendered in connection with the disposal of the immovable property in South Africa, is obliged to notify the purchaser of the fact that the withholding tax is applicable before any payment is made to the seller. In a de minimus provision, it is provided that the withholding tax is not payable if the purchase price does not exceed R2million.


In the budget speech by the Minister of Finance on 23 February 2005, it was indicated that a withholding tax will also be introduced on visiting entertainers and sports people. This withholding tax has specially been introduced because of poor tax compliance. A final withholding tax has been set at 5% for visiting residents of African countries and 15% for residents of other countries. It was indicated that the lower rate for African residents recognises the special nature of South Africa’s relationship with other African countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.