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South African Withholding Taxes

29 May 2009
Esmari van de Vyver

South Africa levies the following withholding taxes on payments to persons that are not tax resident in South Africa:

Immovable property - Section 35A

The capital gain made on the sale of immovable property in South Africa is of a South African source.
Any person that buys a property for more than R2 million from a non-resident has to pay tax thereon over to SARS.
If the seller is a natural person, the payment to SARS is 5% of the purchase price, if the seller is a company it is 7.5% and if it is a trust 10%.
South African residents have to make the payment within 14 days of paying the purchaser and non-residents within 28 days.

Employees' tax - Fourth Schedule

Payments to non-residents employees, labour brokers and independent contractors are subject to employees' tax.

Entertainers and sportspersons - Section 47A-K

South African residents who pay visiting entertainers and sportspersons must pay 15% tax on the total bill over to SARS.
Anyone that directly or indirectly makes money out of organising events where non-resident entertainers and sportspersons will appear must let SARS know of such events by submitting this form.
Most agreements for the avoidance of double taxation (DTA's) provide that income earned by non-resident entertainers and sportspersons in South Africa may be taxed in South Africa.

Dividends - Section 64D to 64L

The new dividend withholding tax that will replace STC is not effective yet. The rate will be 10% and companies declaring a dividend will withhold 10% on the amount of the dividend declared and pay that over to SARS.
At the time that the new legislation was drafted, all of South Africa's DTA's referred to STC, which is something completely different from a dividend withholding tax. These references will have to be deleted and as it can take years to renegotiate a treaty, it will be a lengthy process.
Some of South Africa's DTA's determine that South Africa may not withhold any taxes on dividends paid to residents of the other country and some others provide that the rate is much lower than 10%.
The South African National Treasury has decided that the dividend article of all DTA's that reduce the withholding tax to below 5% has to be amended before the new dividend withholding tax will be implemented. These are the treaties with:
  - Australia
  - Cyprus
  - Ireland
  - Kuwait
  - The Netherlands
  - Oman
  - Seychelles
  - Sweden
  - The United Kingdom.
To date only the Netherlands and Australia treaties have been amended.

Royalties - Section 35

Royalty payments to non-residents for the use of intellectual property, knowledge or information in South Africa are subject to 12% withholding tax.
Many DTA's contain a clause that reduces the rate at which South Africa may withhold tax on royalties and in several cases the rate is reduced to zero if the royalty is taxed in the treaty country.