Withholding Tax on Royalties (WTR)

What is WTR?

The WTR is due on any amount of royalty paid to or for the benefit of a foreign person from a source within South Africa.
The foreign person is liable for the tax. The person paying it to the foreign person must withhold this tax from the royalty payment. This would normally be the withholding agent.

A royalty is any amount that is received or accrues in respect of:

The use, right of use or permission to use any intellectual property.
Imparting or undertaking to impart any scientific, technical, industrial or commercial knowledge or information
The undertaking to render any assistance or service in connection with the application or utilisation of that knowledge or information.

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

For information from 1 January 2015 the tax rate changed from 12% to 15%.

What steps do I need to take?

Where a withholding agent withheld withholding tax on royalties, a Return for Withholding Tax on Royalties form must be submitted to SARS with proof of payment for taxpayers that deal with Large Business.

Taxpayers that do not deal with Large Business unit returns must be submitted at your nearest SARS branch with the proof of payment.

Do any exemptions or reduced rates apply for WTR?

A Withholding Tax on Royalties Declaration (WTRD) must be completed by the foreign person and be submitted to the withholding agent before an exemption or a reduced rate may be applied in the calculation of the withholding tax on royalty amount to be paid.

The withholding agent must keep the WTRD for five years, as you may be asked to send it to SARS. It is the responsibility of the payer to make sure that the declaration made by the foreign person is in the form as prescribed.

What are the Exemptions?

In the WTRD parts A, B and C of the must be completed.

The following exemptions may apply, to the foreign person, before paying the royalty to the foreign person:

The foreign person is a natural person who was physically present in the Republic for a period of more than 183 days in total during the twelve-month period before the date on which the royalty is paid.
The property in respect of which the royalty is paid is effectively connected to a permanent establishment of that foreign person in the Republic, and that foreign person is registered as a taxpayer in terms of the Act.

It is important to remember that the exemptions won’t apply unless the WTRD has been submitted to the payer of the royalty before payment of the royalty is made.

Please Note a WTRD doesn’t need to be completed in order to qualify for the exemption when the royalty is paid by a headquarter company in respect of the granting of the use, the right of use or permission to use intellectual property under certain circumstances.

Reduced Rate

The foreign person could qualify for a reduced rate of tax in terms of an Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion (DTA) between South Africa and the country of residence of the foreign person.
It’s also possible for the foreign person to be exempt in terms of the DTA in cases where South Africa doesn’t have the right to tax royalties.

When and how should it be paid?

The withholding tax must be paid before the end of the month following the month in which the royalty was paid. The payer must (together with the payment) submit a WTR01 form (Return for Withholding Tax on Royalties, which is a summary of the total of all royalty payments made and tax withheld during a month, to SARS.

If the last day of the month happens to be a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend.