Most Read Contributor in South Africa, September 2016
With effect from 1 March 2015, withholding tax on interest will
be levied at a rate of 15% in respect of interest that is
paid by any person to or for the benefit of any
foreign person, to the extent that the interest is regarded as
having been received or accrued from a South African source. For
purposes of the withholding tax, interest will be deemed to
be paid on the earlier of the date on which the interest is paid or
becomes due and payable.
The phrase 'due and payable' is not defined in the
Income Tax Act 58 of 1962 ("the Act")
nor does the Explanatory Memorandum issued by the South African
Revenue Service ("SARS") in respect of
the Taxation Laws Amendment Bill of 2013 (which was promulgated as
the Taxation Laws Amendment Act, 43 of 2014) provide any guidance
in respect of the phrase 'due and payable'.
For many years, there was a misconception that the phrase
'accrued to' was akin to 'due and payable' but the
Supreme Court of Appeal (then the Appellate Division) decided in
CIR v People's Stores (Walvis Bay) (Pty) Ltd (1990 (2) SA
353 (A)) that the phrase 'accrued to' meant
'entitled to' and not 'due and payable'.
In considering the meaning of 'due and payable', Olivier
JA stated the following in Singh v C: SARS (2003 (4) SA 520
"The ordinary meaning of
'due' is that there must be a liquidated money obligation
presently claimable by the creditor for which an action could
presently be brought against the debtor. Stated another way, the
debt must be one in respect of which the debtor is under an
obligation to pay immediately."
Olivier JA continued to state that:
"The word 'payable'
can have at least two different meanings, viz '...(a) that
which is due or must be paid, or (b) that which may be paid or may
have to be paid. The sense of (a) is a present liability -
due and payable, (b) a future or contingent
Therefore, an amount may be due under a contract but may not be
payable, as that amount may only be payable when the time for
payment arrives. For an amount to be 'due and payable', it
means that essentially the creditor must have the right to claim
payment of that amount immediately and must be able to bring an
action for payment of the amount if the debtor does not comply with
his obligation to pay.
Accordingly, where a South African resident makes payment in
respect of interest-bearing arrangements to non-resident creditors,
the withholding tax will be levied on interest that is paid or
becomes 'due and payable' on or after 1 March 2015 at a
rate of 15%, subject to relief which may be afforded in terms of
the applicable exemptions contained in the Act or a reduction in
the withholding tax rate based on an applicable double taxation
agreement. This would be the case even if the interest accrued (but
remained outstanding) prior to 1 March 2015, if the terms are such
that the interest was not due and payable prior to that date. It
would therefore be advisable to evaluate the terms of existing
interest-bearing arrangements which will continue through 1 March
2015 to determine the interest withholding tax implications thereof
as from 1 March 2015, and to notify the non-resident creditor of
Where the non-resident creditor is exempt from withholding tax
on interest or the non-resident creditor qualifies for a reduction
in the withholding tax rate based on an applicable double taxation
agreement ("DTA"), such non-resident
must submit to the person making the payment a declaration in such
form as may be prescribed by SARS. In addition to such declaration,
the non-resident creditor also needs to submit a written
undertaking in such form as may be prescribed by SARS to inform the
person making the payment should the circumstances affecting the
application of the DTA change. This declaration and written
undertaking should be provided by a date determined by the person
making the payment or if no such date is determined, then by the
date of payment. It should thus be ensured that these requirements
are complied with timeously, as otherwise the resident making
payment of the interest must pay the withholding tax over to SARS.
The non-resident must then submit the pertinent declaration to SARS
within 3 years after payment of the interest in respect of which
the declaration is made, in which case the relevant withholding tax
will be refunded by SARS directly to the non-resident.
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.
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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