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| South Africa Provides Ruling On Taxes Within DTAs |
by Lorys Charalambous, Tax-News.com, Cyprus
Tuesday, September 20, 2011
The Legal and Policy Division of the South African Revenue Service (SARS) has
issued a Binding General Ruling (BGR) that identifies the taxes which constitute
taxes on income, or substantially similar taxes, for the purposes of South Africa’s
double tax agreements (DTAs).
It was emphasized that the BGR reflects SARS’s view, based on South Africa’s
domestic tax laws, but that a foreign tax jurisdiction might hold a different
view based on its own domestic tax laws.
Under the BGR, the country’s present taxes that are classified as taxes
on income, and thus qualify for relief from double taxation under South Africa’s
DTAs, are the normal tax on income, which includes taxable capital gains; the
withholding tax on royalties; the withholding tax on foreign entertainers and
sportspersons; the turnover tax on micro businesses; and the secondary tax on
companies (STC).
In addition, the employees’ tax, provisional tax, and amounts withheld
from payments to non-resident sellers of immovable property in South Africa,
all represent advance payments of normal tax; and the taxes on income which
are to be introduced in the near future - a final withholding tax on dividends,
effective from April 1, 2012, and a final withholding tax on interest, effective
from January 1, 2013 - will also qualify for treaty relief.
SARS pointed out that South African corporate taxes on income are imposed in
two stages. Normal tax is imposed at the first stage on an annual basis on taxable
income, whereas, at the second stage, STC is imposed on a resident company on
the “net amount” when a dividend is declared by the company.
South Africa has reached agreement with all its treaty partners that STC is
a creditable corporate tax. Nevertheless, the circumstances under which a non-resident
will be able to secure a tax credit for STC will depend on the terms of the
tax legislation of the non-resident’s country of residence.
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