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3 situations which are exempt from Withholding Tax on Interest

by , 02 March 2016
Exactly one year ago, SARS introduced Withholding Tax on Interest (WTI) which makes you pay tax on the interest you pay to a foreign national.

Failure to comply with this tax can leave you out-of-pocket with SARS, and so knowing when to levy WTI is very important for your sake...

But did you know that when it comes to WTI, there are 3 situations in which interest is exempt from WTI?

Take a look at what they are and save time and money when it comes to levying WTI...

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Situation#1:

Interest is exempt if it's paid or payable for any listed debt.
 
Situation#2:

Interest is exempt from WTI if it's paid or payable by:

·         Any bank;

·         The South African Government;

·         A headquarter company on any financial assistance to a foreign person, but only if it holds at least 10% of the equity share (shared ownership) and voting rights to that foreign person; or

·         An authorised user or exchange on funds held in trust (in other words, held by a person who is not the owner but a trustee or agent). This is under Section 21 (6) of the Financial Markets Act, if that foreign person is a client as defined within in the Act.
 

REMEMBER: A 'foreign person' can be an individual, a company or a corporation etc.
 
Situation#3:

 Interest is exempt from WTI if the foreign person is:

·         A natural person who was in South Africa for more than 183 days during the 12 months before the date the interest becomes payable; or

·         A registered taxpayer in South Africa and the debt claim, on which the interest is paid, is linked to a permanent organisation in South Africa.
 
NOTE: If you want Exemption#3 to apply, you must get a declaration from the foreign person BEFORE the interest is paid.
 
CAUTION: Any interest on funds which are lent to a bank, and that are linked to any type of loan given to another person by that same bank, will NOT qualify for WTI exemption.
 
*To understand this cautionary note in more practical terms, and to learn much more on Withholding Tax on Interest, simply page over to chapter W 03 in your Practical Tax Loose Leaf Service handbook.

If you don't have this fantastic resource already, click here.  

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