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Interest withholding tax – are you ready for 1 January 2015?
The provisions of the interest witholding tax (IWT) appear to be fairly straightforward. However, there are aspects of the law which might not have been fully considered. Taxand South Africa considers these aspects.
What exactly is “interest” for purposes of the IWT?
In terms of current legislation which will become effective on 1 January 2015, the term “interest” is not defined. This is surprising since one would expect the provisions to contain a definition of the very element which they seek to tax. The issue is that the scope of the “interest” definition contained in the Act extends beyond common law interest. Given the lack of the definition of “interest” in the IWT provisions, the scope of the IWT provisions could extend wider than the legislator may have anticipated.
Can the IWT apply to non-residents?
The IWT provisions apply to South African sourced interest which is paid to or for the benefit of a foreign person by any person. Interest paid by a non-resident borrower to a non-resident lender may be subject to the IWT where the non-resident borrower has utilised or applied in South Africa, the funding obtained from the non-resident lender. This will result in a withholding obligation being placed on a non-resident.
The impact of the above will likely result in non-residents having to register as South African taxpayers in order to submit IWT returns to the extent that the administrative provisions pertaining to the IWT are similar to those of the dividends tax. This may increase the tax compliance burden on non-residents.
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