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South Africa Provides Ruling On Taxes Within DTAs

by Lorys Charalambous,, Cyprus

20 September 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.

TAGS: individuals | South Africa | tax | business | double tax agreement (DTA) | royalties | law | entertainers | employees | corporation tax | agreements | sportsmen | legislation | withholding tax | dividends | micro business | individual income tax | Africa

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