Withholding Tax On Interest South Africa WTI

Withholding Tax On Interest South Africa WTI 

What is Withholding tax?

Withholding tax is the amount of tax retained by one person when making payments to another person in respect of goods supplied or services rendered by the payee. A person receiving or entitled to receive a payment from which income tax is required to be withheld is a withholdee while a person required to withhold income tax from a payment made to a withholdee is referred to as the Withholding Agent.

Withholding Tax On Interest South Africa WTI
Withholding Tax On Interest South Africa WTI

Withholding Tax On Interest South Africa WTI

The Withholding Tax on Interest WTI is a tax charged on interest paid (on or after 1 March 2015) by any person to or for the benefit of a foreign person (which includes individuals, companies, etc.) from a source within South Africa.

The foreign person is responsible for the tax, but it must be withheld by the person making the interest payment to or for the benefit of the foreign person. Interest paid is taxed at a final withholding tax rate of 15%.

What exemptions or reduced rates apply for Withholding Tax on Interest WTI

The exemptions relevant to WTI fall into three broad groups:
  1. The payor (the person paying the interest)
  2. The instrument (the instrument giving rise to the interest, e.g. the debt or the investment)
  3. The foreign person (the recipient of the interest).

Payor:

An amount of interest is exempt if it is paid by —
  1. The Government of South Africa (national, provincial or local sphere)
  2. Any bank, including the South African Reserve Bank (SARB), Development Bank of South Africa or Industrial Development Corporation or
  3. A headquarter company relating to financial assistance where the headquarter company directly or indirectly holds 10% of the equity and voting rights.

Instrument:

An amount of interest is exempt if it is paid –
  • In connection with listed debt, e.g. bonds listed on the Johannesburg Stock Exchange (JSE)
  • Interest payable to any foreigner that is a client, to whom a regulated person provides securities services, acts as an agent for another person about those services in which case it will include the agent or exclude the other person, if the contractual arrangement between the parties shows this to be the intention.
The above exemptions are based on the payor and the instrument doesn’t require the WTID – Withholding Tax on Interest Declaration to be completed and sent to the payor before payment of the interest.

Foreign recipient:

A foreign person is exempt from WTI if:
  • They are a natural person who was here in South Africa for a period more than 183 days in total during the 12 months before the date when the interest is paid; or
  • The debt claim for which interest is paid is effectively connected with a permanent establishment of the foreign person who is registered as a taxpayer in South Africa.

Reduced rates

A reduced rate of tax or exemption may apply under an applicable Agreement for the Avoidance of Double Taxation(DTA). The DTA may reduce the rate South Africa is allowed to charge, or even deny South Africa the right to tax the interest payments. The reduced rates or exemptions under a DTA don’t automatically apply but require the  WTID – Withholding Tax On Interest Declaration to be submitted to the payor of the interest prior to payment of the interest.

When and how should it be paid?

Withholding Tax on Interest WTI can be paid to SARS only electronically via eFiling,

The payer must file the Return for Interest Withholding Tax (WT002), which is a summary of the total interest payments paid and taxes withheld within a month, to the SARS. WT002 must be submitted and paid to SARS before the end of the month after the month in which the interest was paid.

What else is needed?

SARS will need a reconciliation summary of all the WTI payments made for the year. This is where you will declare who you withheld tax from.
  • An IT3(b) – Certificate of Income from Investments, Property Rights and Royalties must be completed and given to the foreigner and SARS.
    • Submission of the IT3(b)s to SARS can be done using one of the Third Party Data Submission Platforms. Follow the guidelines for the submission of Third Party Data as set out in the SARS External Business Requirement Specification (BRS) – IT3 Data Submission (2014 version 2.0.3) for submissions periods starting 01 March 2021 and afterwards use the updated SARS IT3 BRS i.e. SARS_External BRS_2020_IT3s_v3.0.0-32.
  • IT3(s) – Tax Free Savings/Investments and Withholding Tax on Interest (WTI)
    • For the 12 month period 1 March  to 28 February due by 31 May of the next year using the updated BRS version 2.0.3 for submissions periods starting 01 March 2021 and afterwards use the updated SARS IT3 BRS i.e. SARS_External BRS_2020_IT3s_v3.0.0-32.
    • Only one 12 month submission will be needed for Tax Free Savings/Investments and WTI.