Get this wrong and SARS will chase you for someone else's tax!
Do you do business with foreign nationals in other countries? If so, there's a new tax that you need to comply with: Withholding Tax on Interest (WTI)!
So when the foreign national has made a payment, you're obligated to withhold tax on the interest of the payment. And pay the tax over to SARS on behalf of the foreign national. If you don't SARS will hold you liable!
Sounds complicated right? Wrong. You don't have to worry about the complexities of WTI. I'll make it easy for you and explain when to withhold interest on tax.
What interest does WTI apply to?
Where interest is due and payable, but not yet paid over;
Where interest is paid or payable to a foreign national (includes an individual, a company, a trust or entity);
The interest arises from a source within South Africa; and
Where there's no exemption on the interest.
Let's look at three examples to make it easier to understand.
Uzer (Pty) Ltd got a loan from a foreign investment firm to finance their operations in South Africa.
With the money received, Uzer purchased vehicles to carry tourist around Cape Town. The foreign investment firm charges interest on the loan.
WTI applies to the interest on this loan.
Genah, a foreign national, lives in South Africa. Genah lends Peter, a South African, some money from his local bank account and charges him interest.
The interest charged is subject to WTI.
Amble, a foreign national, lives in South Africa. He lends money to Patrick, a South African, from his foreign bank account, and charges him interest.
Patrick uses the money to buy his holiday home in England.
This interest won't be subject to WTI, because Patrick didn't use the money in South Africa.
What's important is not the source of funds but whether the interest is paid or payable to a foreign person. Read on below…
Your checklist for when WTI applies.
Is the lender a foreign person?
Are you a resident for tax in South Africa?
Did you see the money in South Africa?
Is the interest payable or has it been paid?
Did you answer no to any of the above? Then you don't have to worry about WTI.
Even if you know the interest is exempt from WTI, make sure you consider the above questions. Also, keep a paper trail of your determination so you can prove to SARS the interest is exempt. Just in case they investigate this!
So that's it! Don't miss next week when I explain how to pay WTI over to SARS.
David van Niekerk explains WTI in detail in the chapter W03- Withholdings tax on interest
of the Practical Tax loose leaf. Don't have a copy yet? Get your copy here…