Foreign Dividends – clarification of foreign

dividend exemption for a recipient company

• To clarify that the section 10B(3)(b)(ii)(bb)(A) exemption for a company was
previously 8/28;
• However, the ratio changed to 7/27 for years of assessment ending on or after 31
March 2023 for a company;
• Silke: South African Income Tax Act, 2023 – reflects the updated rate of 7/27 on
page 95;
• Although the legislation remains unchanged with a ratio of 8/28, you will be
required to apply the new rate of 7/27 for years of assessment ending on or after
31 March 2023 for a company.
Non-residents
Non-residents
• Non-resident – no definition in the Act;
• Accordingly any person that is not a “resident” as defined;
• “Resident” definition – section 1 of the Income Tax Act;
• SAICA indicate “number of days will be provided and place of effective
management will be stated”;
• Double taxation agreement override – deemed to be resident in a foreign
country;
• “ordinarily resident” – not defined – guidance provided by case law:
• Cohen vs CIR
• CIR vs Kuttel;
• Or determined to be resident under the physical presence test.
Non-residents
Definition “gross income”:
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or
accrued to or in favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or
otherwise, or in favour of such person from a source within the Republic, received
by or accrued to
during such year or period of assessment, excluding receipts or accruals of a capital
nature

It follows a non-resident is only taxed on receipts and accruals from a South

African source.
First check the Statutory Source Rules in section
9 (2) of the Income Tax Act:
(2) An amount is received by or accrues to a person from a source within the Republic if that amount—
(a) constitutes a dividend received by or accrued to that person;
(b) constitutes interest as defined in section 24J where that interest—
(i) is attributable to an amount incurred by a person that is a resident, unless the interest is attributable to a
permanent establishment which is situated outside the Republic; or
(ii) is received or accrues in respect of the utilisation or application in the Republic by any person of any funds or
credit obtained in terms of any form of interest-bearing arrangement;
(i) constitutes a lump sum, a pension or an annuity payable by a pension fund, pension preservation fund, provident
fund or provident preservation fund and the services in respect of which that amount is so received or accrues were
rendered within the Republic: Provided that if the amount is received or accrues in respect of services which were
rendered partly within and partly outside the Republic, only so much of that amount as bears to the total of that
amount the same ratio as the period during which the services were rendered in the Republic bears to the total
period during which the services were rendered must be regarded as having been received by or accrued to the
person from a source within the Republic
(j) constitutes an amount received or accrued in respect of the disposal of an asset that constitutes immovable property
held by that person or any interest or right of whatever nature of that person to or in immovable property contemplated
in paragraph 2 of the Eighth Schedule and that property is situated in the Republic;
(k) constitutes an amount received or accrued in respect of the disposal of an asset other than an asset contemplated
in paragraph (j) if
• that person is not a resident and that asset is effectively connected with a permanent establishment of that person
which is situated in the Republic; or
Section 9(2)(a) – the source of a dividend
Section 9(2) An amount is received by or accrues to a person from a source within the Republic if that
amount—
(a) constitutes a dividend received by or accrued to that person;
• Definition of dividend in section 1:
“means any amount……..transferred or applied by a company that is a resident for the benefit or on behalf
of any person in respect of a share in that company…….”
• If a dividend is paid by a South African resident company the source of the dividend is South Africa;
Section 9(2)(b)(i) – the source of interest
(2) An amount is received by or accrues to a person from a source within the Republic if that
amount—
(b) constitutes interest as defined in section 24J where that interest—
(i) is attributable to an amount incurred by a person that is a resident, unless the interest is
attributable to a permanent establishment which is situated outside the Republic……
• Interest is from a source in South Africa if it is incurred by a resident, unless the interest is
attributable to a permanent establishment which is situated outside South Africa.
• Section 24J not covered in TAXIIIB;
• You will be told that it is interest and therefore you can assume that is meets the definition in
section 24J;
• A permanent establishment is defined as a fixed place of business through which a business is
carried on (Article 5.1 of the OECD Model Double Taxation Convention). An example could
be a branch, an office, a factory etc.
• You do not need to know how to identify a permanent establishment;
• You will be told if something is a permanent establishment;
Section 9(2)(b)(ii) – the source of interest
(2) An amount is received by or accrues to a person from a source within the Republic if that
amount—
(b) constitutes interest as defined in section 24J where that interest—
(ii) is received or accrues in respect of the utilisation or application in the Republic by any
person of any funds or credit obtained in terms of any form of interest-bearing arrangement;
• Interest received or accrued to a non-resident in respect of the use or application of the funds in
South Africa is from a South African source;
• It follows if the funds from a loan were used in South Africa, the source of the interest will be
South Africa;
Section 9(2)(i) – Source of lump sum amounts or a
pension or annuity from retirement funds
(2) An amount is received by or accrues to a person from a source within the Republic if
that amount—
“(i) constitutes a lump sum, a pension or an annuity payable by a pension fund, pension
preservation fund, provident fund or provident preservation fund and the services in respect
of which that amount is so received or accrues were rendered within the Republic: Provided
that if the amount is received or accrues in respect of services which were rendered partly
within and partly outside the Republic, only so much of that amount as bears to the total of
that amount the same ratio as the period during which the services were rendered in the
Republic bears to the total period during which the services were rendered must be regarded
as having been received by or accrued to the person from a source within the Republic”
• Pension fund, pension preservation fund, provident fund or provident
preservation fund are South African retirement funds approved by SARS;
• The South African source component of the lump sum, a pension or annuity
from one of the funds will be determined to the extent that services were
rendered in South Africa, in relation to the total period of services rendered;
Section 9(2)(j) – the source of the amount
following the disposal of immovable property or
an interest in immovable property
(2) An amount is received by or accrues to a person from a source within the
Republic if that amount—
(j) constitutes an amount received or accrued in respect of the disposal of an asset
that constitutes immovable property held by that person or any interest or right of
whatever nature of that person to or in immovable property contemplated
in paragraph 2 of the Eighth Schedule and that property is situated in the Republic;
• The source of the amount will be in South Africa if the immovable property that
was sold is situated in South Africa;
• The source of the amount will also be in South Africa if it relates to the sale of an
interest in immovable property in South Africa (refer to next slide for details);
Section 9(2)(j) – source of the amount following
the disposal of an interest in immovable property
• So what is an interest in immovable property in the Republic?
• Where a person owns shares in a company or has a vested interest in the
assets of a trust and
• 80% or more of the market value of those equity shares in the company or
the vested interest in the trust relates to immovable property in the Republic
and
• the person owing the shares in the company, holds (with any other
connected person) at least 20% of the equity shares in that company.
Section 9(2)(k) – source of an amount from
the sale of a movable property
(2) An amount is received by or accrues to a person from a source within the Republic
if that amount—
(k) constitutes an amount received or accrued in respect of the disposal of an asset other
than an asset contemplated in paragraph (j) if that person is not a resident and that asset
is effectively connected with a permanent establishment of that person which is situated
in the Republic;….
• If a non-resident disposes of a movable property, the source of the amount from the
disposal will be from South Africa if the movable property relates to a permanent
establishment of that person in the Republic;
• For this to take place the non-resident would need to have a permanent establishment in
the Republic; AND
• The movable property was part of the assets of the permanent establishment which was
subsequently sold;
Section 9(2) – Statutory Source Rules
• SAICA exclusions:
• Section 9(1);
• Section 9(2)(c), (d), (e), (f), (g), (h) and (l);
Section 9(4) – the opposite – accrues from a
source outside the Republic.
(4) An amount is received by or accrues to a person from a source outside the Republic if
that amount—
(a) constitutes a foreign dividend received by or accrued to that person;
(b) constitutes interest as defined in section 24J (1) received by or accrued to that person
that is not from a source within the Republic in terms of subsection (2)(b);
(d) constitutes an amount received or accrued to that person in respect of the disposal of
an asset that is not from a source within the Republic in terms of subsection (2)(j) or
(k);
• SAICA exclusions – Section 9(4)(c) and (e);
Non-residents
• No statutory source rule in section 9(2)?
• Then refer to case law:
• CIR v Lever Brothers and Unilever Ltd – a SAICA case;
• What is the originating cause of the income – what gives rise to the income?
• Where is the originating cause located?
• Services rendered
• the place where those services were rendered;
• Employment – only section 9(2)(g) and (h) for public servants but these provisions
excluded from the syllabus;
• Source of the employment income is normally where the services were performed
to earn the salary;
• Director fees – where the Head office is located or board meetings take place;
• Rent
• the originating cause is normally where the asset is used to earn the rental
income;
• Annuities – not subject to section 9(2)(i) – the place where the contract was entered
into;
Capital gains tax for a non-resident – para 2 of
the Eighth Schedule
2. Application.—(1) Subject to paragraph 97, this Schedule applies to the disposal on
or after valuation date of—
(a) the following assets of a person who is not a resident, namely—
(i) immovable property situated in the Republic held by that person or any interest
or right of whatever nature of that person to or in immovable property situated in
the Republic including rights to variable or fixed payments as consideration for
the working of, or the right to work mineral deposits, sources and other natural
resources; or
(ii) any asset effectively connected with a permanent establishment of that person in
the Republic.
Non-residents – an interest exemption in
section 10(1)(h)
The interest that accrues or is received by the non-resident will be exempt
from normal tax in the Republic provided:
• If the recipient is a natural person, that natural person was not physically present in
the Republic for a period exceeding 183 days in aggregate during the 12 month period
preceding the date on which the interest is received or accrues to that person or
• The debt from which the interest arises is not effectively connected to a permanent
establishment of that person in the Republic.
• Note section 10(2)(b) states that section 10(1)(h) cannot apply if the interest is paid to the
non-resident in the form of an annuity;
• In the absence of section 10(1)(h) for a natural person – consider section 10(1)(i)?
• For natural persons, the interest exemption is R23 800 per year;
• For natural persons 65 years or older the interest exemption is R34 500 per year;
• Note change in the legislation to apportion the interest exemption for a year of assessment
less than 12 months, only applies from 1 March 2023.
Section 10(1)(h) example
John is resident in a foreign country. During the 2023 year of assessment John did not travel
to South Africa. During the 2023 year of assessment, the following accrued and was
received by John:
• R15 000 in interest from a loan to his friend, Mkhize in Johannesburg. Mkhize is resident
in the Republic. John made a twelve-month loan to Mkhize on 1 March 2022. The loan
agreement provided that interest of R15 000 accrued and was payable on 28 February
2023 to John. On the 28 February 2023, Mkhize repaid the loan to John with the interest
of R15 000.
Required: Determine the normal tax implications for John of the interest in his 2023 year of
assessment. (Ignore withholding taxes).
Solution – section 10(1)(h)
Gross Income (under section 9(2)(b)(i) or (ii))……………..……………R15 000
Section 10(1)(h)………………………………………………………....(R15 000)
Income……………………………………………………………………Rnil
Non-residents register as a taxpayer with
SARS?
Section 67
Registration as taxpayer.—(1) Every person who at any time becomes liable for any
normal tax or who becomes liable to submit any return contemplated in section 66 must
apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of
the Tax Administration Act.
Non-residents register as a taxpayer with SARS:
Section 22 of the Tax Administration Act
22. Registration requirements.—(1) A person—
(a) obliged to apply to; or
(b) who may voluntarily,
register with SARS under a tax Act must do so in terms of the requirements of this
Chapter or, if applicable, the relevant tax Act.
(2) A person referred to in subsection (1) must—
(a) apply for registration within the period provided for in a tax Act or, if no such period
is provided for, 21 business days of so becoming obliged or within the further period as
SARS may approve in the prescribed form and manner…..
Persons who must submit an income tax return –
Government Gazette No. 48788
Included for Illustrative purposes only.
(c) Every company, trust or other juristic person, which was not a resident during the 2023
year of assessment, that—
(i) carried on a trade through a permanent establishment in the Republic;
(ii) derived income from a source in the Republic; or
(iii) derived any capital gain or capital loss from the disposal of an asset to which the Eighth
Schedule to the Income Tax Act applies;
(d) Every company incorporated, established or formed in the Republic, but that was not a
resident as a result of the application of any agreement entered into with the Government of
any other country for the avoidance of double taxation during the 2023 year of assessment;
Persons who must submit an income tax return -
Government Gazette No. 48788
Included for Illustrative purposes only.
(e) Every natural person who during the 2023 year of assessment─
(ii) was not a resident and carried on any trade (other than solely in his or her capacity as an
employee) in the Republic;
(f) (ii) Every natural person who during the 2023 year of assessment was not a resident and
had capital gains or capital losses from the disposal of an asset to which the Eighth
Schedule to the Income Tax Act applies;
(h) Every non-resident whose gross income during the 2023 year of assessment included
interest from a source in the Republic to which the provisions of section 10(1)(h) of the
Income Tax Act do not apply.
Withholding tax on Interest
• Before interest is paid to a non-resident, the interest could be subject to a withholding tax
under section 50B in the Republic;
• Under section 50B, the person that pays the interest could be obliged to withhold 15% of
the interest payable to the non-resident and to pay this amount to SARS;
Withholding tax on Interest
Section 50A – definitions:
“bank” means any—
(a) any bank or branch as defined in section 1 of the Banks Act respectively;
(b) mutual bank as defined in section 1 of the Mutual Banks Act, 1993 (Act No. 124 of 1993); or
(c) co-operative bank as defined in section 1 of the Co-operative Banks Act, 2007 (Act No. 40 of
2007);
“Development Bank of Southern Africa” means the Development Bank of Southern Africa Limited,
incorporated in terms of the Development Bank of Southern Africa Act, 1997 (Act No. 13 of 1997);
“foreign person” means any person that is not a resident;
“Industrial Development Corporation” means the Industrial Development Corporation of South Africa
Limited, registered in terms of the Industrial Development Corporation Act, 1940 (Act No. 22 of 1940);
“interest” means interest as contemplated in paragraph (a) or (b) of the definition of “interest” in section
24J (1), but does not include an amount of interest that is deemed to be a dividend in specie in terms
of section 8F (2) or 8FA (2);
“listed debt” means any debt that is listed on a recognised exchange as defined in paragraph 1 of
the Eighth Schedule
Withholding tax on Interest
50B. Levy of withholding tax on interest.—(1) (a) There must be levied for the benefit of the
National Revenue Fund a tax, to be known as the withholding tax on interest, calculated
(i) at the rate of 15 per cent; or
(ii) at such rate as the Minister may announce in the national annual budget contemplated
in section 27 (1) of the Public Finance Management Act, with effect from a date mentioned in that
Announcement,
of the amount of any interest that is paid by any person to or for the benefit of any foreign person
to the extent that the amount is regarded as having been received or accrued from a source within
the Republic in terms of section 9 (2) (b).
(2) For the purposes of this Part, interest is deemed to be paid on the earlier of the date on which
the interest is paid or becomes due and payable.
(3) The withholding tax on interest is a final tax.
(4) Where a person making payment of any amount of interest to or for the benefit of a foreign
person has withheld an amount as contemplated in section 50E (1), that person must, for the
purposes of this Part, be deemed to have paid the amount so withheld to that foreign person.
Withholding tax on Interest - Exemptions
50D. Exemption from withholding tax on interest.—(1) Subject to subsection (2), there must
be exempt from the withholding tax on interest any amount of interest—
(a) if that amount of interest is paid to any foreign person—
(i) By
(aa) the government of the Republic in the national, provincial or local
sphere;
(bb) any bank, the South African Reserve Bank, the Development Bank of
Southern Africa or the Industrial Development Corporation; or

(ii) in respect of any listed debt;

Withholding tax exemptions – section 50D(3)
(3) A foreign person is exempt from the withholding tax on interest if—
(a) that foreign person is a natural person who was physically present in the
Republic for a period exceeding 183 days in aggregate during the twelve-month
period preceding the date on which the interest is paid; or
(b) the debt claim in respect of which that interest is paid is effectively connected
with a permanent establishment of that foreign person in the Republic if that
foreign person is registered as a taxpayer in terms of Chapter 3 of the Tax
Administration Act.
The liability for the withholding tax – section
50C
50C. Liability for tax.—(1) A foreign person to which an amount of interest is paid is
liable for the withholding tax on interest to the extent that the interest is regarded as
having been received by or accrued to that foreign person from a source within the
Republic in terms of section 9 (2) (b).
(2) Where any amount of withholding tax on interest is—
(a) withheld as contemplated in section 50E (1); and
(b) paid as contemplated in section 50F (2),
that amount of withholding tax on interest must be regarded as an amount that is paid
in respect of that foreign person’s liability under subsection (1).

• According to section 50C, the liability for the withholding tax is with the foreign person.
However, this liability is regarded as paid, if a person withholds the withholding tax on
interest under section 50E(1) and then pays that amount to SARS under section 50F(2).
Section 50E(1) and 50E(2)(a)
50E. Withholding of withholding tax on interest by payers of interest.—(1) Subject
to subsections (2) and (3), any person who makes payment of any amount of interest to or
for the benefit of a foreign person must withhold an amount of withholding tax on interest
calculated at the rate contemplated in section 50B (1) from that payment.
• It follows any person must withhold from the payment of interest a withholding tax on
interest at 15% on the interest payable to the foreign person;

50E(2) A person must not withhold any amount from any payment contemplated
in subsection (1 ) —
(a) to the extent that the interest is exempt from the withholding tax on interest in terms
of section 50D (1)…..
• It follows a person must not withhold from the payment of interest to a foreign person a
withholding tax if the interest is exempt from the withholding tax on interest in section
50D(1).
Filing a return and paying the tax
Section 50F(2)
Any person that withholds any withholding tax on interest in terms of section
50E must submit a return and pay the tax to the Commissioner by the last day of the
month following the month during which the interest is paid.
• It follows if the interest was paid to the foreign person on 12 October 2022 and the
withholding tax on interest was withheld on that day, the person who withheld the
withholding tax in interest must submit a return and pay the tax to SARS by 30
November 2022.
Withholding taxes on the sale of immovable
property by non-residents in the Republic
35A. Withholding of amounts from payments to non-resident sellers of immovable
property.—(1) Any person (hereinafter referred to as “the purchaser”) who must pay any
amount to any other person who is not a resident (hereinafter referred to as “the seller”),
or to any other person for or on behalf of that seller, in respect of the disposal by that
seller of any immovable property in the Republic must, subject to subsection (2),
withhold from the amount which that person must so pay, an amount equal to—
(a) 7.5 per cent of the amount so payable, in the case where the seller is a natural
person;
(b) 10 per cent of the amount so payable, in the case where the seller is a company;
(c) 15 per cent of the amount so payable, in the case where the seller is a trust…..
Reduced withholding tax rate
35A(2) The seller may apply to the Commissioner, in the form and at the place as the
Commissioner may determine, for a directive that no amount or a reduced amount be
withheld by the purchaser in terms of subsection (1) solely having regard to—
(a) any security furnished for the payment of any tax due on the disposal of the
immovable property by the seller;
(b) the extent of the assets of the seller in the Republic;
(c) whether that seller is subject to tax in respect of the disposal of the immovable
property; and
(d) whether the actual liability of that seller for tax in respect of the disposal of the
immovable property is less than the amount contemplated in subsection (1).
What is immovable property for the purpose
of section 35A?
• Section 35A(15) – definition of “immovable property”
• in terms of paragraph 2 (1) (b) (i) and (2) of the Eighth Schedule.
• Immovable property in the Republic and
• An interest in immovable property in the Republic;
Exemptions from the withholding tax under
section 35A(14)
• Section 35A(14) states that section 35A(1) will not apply if
• The sale amount does not exceed R2 000 000;
• To a deposit paid in respect of purchase price until such time as the sale becomes
unconditional – as soon as the sale becomes unconditional, the appropriate amount
must be held from each payment made;
Advance tax for a non-resident’s normal tax
liability – section 35A(3)(a) and (b)
(3)(a) The amount withheld from any payment to the seller in terms of subsection (1) is
an advance in respect of that seller’s liability for normal tax for the year of assessment
during which that property is disposed of by that seller.
(b) If the seller does not submit a return in respect of that year of assessment within 12
months after the end of that year of assessment, the payment of the amount in terms of
subsection (4) is a sufficient basis for an assessment in terms of section 95 of the Tax
Administration Act.
• The non-resident seller would need to submit an income tax return to SARS disclosing the
sale and the withholding tax paid will represent an advance tax against the non-residents
normal tax liability for the year;
• If the non-resident seller fails to submit a tax return for the year of assessment within 12
months from the end of the year of assessment, the payment of the withholding tax will be
used by SARS for issuing an estimated assessment under section 95 of the Tax
Administration Act.
Payments to SARS – section 35A(4)
(4) The amount withheld by a purchaser in terms of subsection (1), must be paid to the
Commissioner—
(a) where that purchaser is a resident, within 14 days after the date on which that
amount was so withheld; or
(b) where that purchaser is not a resident, within 28 days after the date on which that
amount was so withheld.
Sale amounts in foreign currency – section
35A(5)
(5) If an amount has been withheld in terms of subsection (1) from any amount payable in a
foreign currency, that amount so withheld must be translated to the currency of the Republic
at the spot rate on the date that the amount is paid to the Commissioner.
• If the payment amounts are in foreign currency (USD’s or EUR’s etc), the amount to be
paid to SARS is the foreign currency amount withheld translated at the spot rate on the
day of payment to SARS.
Purchaser submitting a return to SARS
Section 35A(6)
The purchaser must, together with the payment contemplated in subsection (4), submit to
the Commissioner a return.
Personal liability for purchaser if fails to withhold
the appropriate amount and pay SARS?
Section 35A (7)
A purchaser is personally liable under the circumstances contemplated in section 157 of
the Tax Administration Act, for the amount that must be withheld under subsection (1)
only if the purchaser knows or should reasonably have known that the seller is not a
resident and must pay that amount to the Commissioner not later than the date on which
payment should have been made if the amount had in fact been withheld.
SAICA Examinable Pronouncements
• Section 35A(8) to section 35A(13) excluded by SAICA;
References for Week 2 Lecture slides
• Silke: South African Income Tax, 2023 edition;
• Income Tax Act No.58 of 1962;
• Article 5(1) and 5(2) of the OECD Model Tax Convention
• SARS: Interpretation Note 115 (Issue 2): Withholding Tax on Interest