Withholding Tax on Interest (WTI) Payments

What is it?

The WTI is a tax charged on interest paid (on or after 1 March 2015) by any person to or for the benefit of a foreigner from a source within South Africa.

The foreigner is responsible for the tax, but it must be withheld by the person making the interest payment to or for the benefit of the foreigner.

Interest paid is taxed at a final withholding tax rate of 15%.

What exemptions or reduced rates apply for WTI?

The exemptions relevant to WTI fall into three groups:

  • The payor (the person liable for the interest)
  • The instrument (the instrument giving rise to the interest)
  • The foreigner (the recipient of the interest).

Payor:

An amount of interest is exempt if it is paid to a foreigner by —

  • The Government of the Republic (national, provincial or local sphere)
  • Any bank, including the South African Reserve Bank (SARB), Development Bank of South Africa or Industrial Development Corporation or
  • A headquarter company relating to financial assistance where the headquarter company directly or indirectly holds 10% of the equity and voting rights.

Instrument:

An amount of interest is exempt if it is paid to a foreigner for –

  • Listed debt, e.g. bonds listed on the Johannesburg Stock Exchange (JSE)
  • Interest payable to any foreigner that is a client, to whom a regulated person provides securities services, acts as an agent for another person about those services in which case it will include the agent or exclude the other person, if the contractual arrangement between the parties shows this to be the intention.

The exemptions based on the payor and the instrument above require no declaration.

Foreign recipient:

A foreigner is exempt from WTI if:

  • They are a natural person who was here in South Africa for a period more than 183 days in total during the 12 months before the date when the interest is paid; or
  • The debt claim for which interest is paid is effectively connected with a permanent establishment of the foreigner who is registered as a taxpayer in South Africa.
Top Tip: The WTID must be kept for five years, by the payor, as you may be asked to send it to SARS. As with Dividends Tax, SARS prescribed the form of this declaration. It is the responsibility of the withholding agent to ensure that the declaration made by the foreign person is in the form as prescribed.

Reduced rates

A reduced rate of tax or exemption may apply under an applicable Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion (DTA). The DTA may reduce the rate South Africa is allowed to charge, or even deny South Africa the right to tax the interest payments. The reduced rates or exemptions under a DTA don’t automatically apply and require the WTID to be submitted to the payor of the interest prior to payment of the interest.

When and how should it be paid?

Please note: WTI payments can only be made from 13 April 2015. We apologies for the inconvenience and will notify clients once the payment facility is available.

WTI can only be paid to SARS electronically via eFiling.

A withholding agent must submit the WT002 – Declaration of Withholding Tax on Interest, which is a summary of the total of all interest payments made and tax withheld during a month, to SARS. The WT002 and the payment must be submitted to SARS before the end of the month after the month in which the interest was paid.

Remember: The tax withheld must be submitted from the end of April 2015

Top Tip: If the last day of the month is a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.

What else is needed?

A reconciliation submission of all the WTI payments must be made for the year.

This must be done half yearly:

  • For the first six months of the year 1 March to 31 August – by 31 October
  • For the second six months of the year 1 September to 28 February – by 31 May.

Please note: The first reporting period is due by the end of May 2016 for the 12 month period (year) ending February 2016.