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3 criteria to determine if you must levy Withholding tax on Interest

by , 02 March 2016
As of the 1st of March 2015, SARS introduced a new tax, namely Withholding Tax on Interest (WTI).

It's a special withholding tax on interest payments to foreign persons. In other words, it's a tax which is charged on the interest paid by you to any foreign person. You withhold it and then pay to over to SARS.

The reason SARS does this is because it holds YOU LIABLE for the taxes, instead of having to chase foreign nationals in other countries in order to recover taxes owing to them.

Because you'll be held liable, it's important for you to know how WTI works. In other words, you must know when to pay WTI in the first place, otherwise you'll end up being penalised by SARS.

Having said that, here are 3 criteria which must be met in determining if you must levy WTI...

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1. The interest must have been paid. This includes if the interest has not actually been paid over yet, but is due and payable.
2. The interest must be paid or payable to a foreign person. Or for the benefit of a foreign person.
NOTE: A 'foreign person' includes an individual, a company, a corporation or any other body defined as a 'person' under Section 1 of the Income Tax Act.
3. The interest must come from a source within South Africa, per Section 9 (2) (b) of the Income tax Act. This happens only where the funds or credit is used or applied within South Africa.
*If you meet these 3 criteria, then you must levy WTI.

NOTE: WTI is considered to be a final tax, which is levied at a rate of 15%. But this can be reduced.

To learn more on Withholding Tax on Interest, and on whether or not you must levy WTI, go to chapter W 03 in your Practical Tax Loose Leaf Service handbook, or click here if you don't already have it. 

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