Withholding Tax on Interest (WTI)

What is Withholding Tax on Interest?

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 foreign person that includes individuals, companies, from a source within South Africa.

The foreign person is responsible for the tax, but the person making the interest payment to or for the benefit of the foreign person must withhold it.

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

You must take into consideration when completing taxpayer information during registration and activation of WTI, the personal details and banking details must be the same as the information on the Income Tax registration. Using any other information will result into your registration and activation requested being rejected.

What exemptions or reduced rates apply for WTI?

The exemptions relevant to WTI fall into three broad groups:

The Payer (the person paying the interest)
The Instrument (the instrument giving rise to the interest, e.g. the debt or the investment)
The foreign person (the recipient of the interest)

Payer:

An amount of interest is exempt if it is paid by:

The Government of South Africa (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:

In connection with 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 above exemptions based on the payer and the instrument doesn't require the WTID to be completed and sent to the payor before payment of the interest.

Foreign recipient:

A foreign person is exempt from WTI if:

They are a natural person who was in South Africa for a period more than 183 days in total during the 12 months before the date when the interest is paid
The debt claim for which interest is paid is effectively connected with a permanent establishment of the foreign person who is registered as a taxpayer in South Africa.

The payer must keep the WITD for five years as you may be asked to send it to SARS. As with Dividends Tax, SARS prescribes the content of this declaration. It is the responsibility of the payer to make sure that the declaration made by the foreign person is in the form as prescribed.

Reduced rates

A reduced rate of tax or exemption can apply under an applicable Agreement for the Avoidance of Double Taxation (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 but requires the WITD to be submitted to the payer of the interest prior to payment of the interest.

When and how should it be paid?

WTI can only be paid to SARS electronically via eFiling,

A payer must submit the Return for 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 WTI form and the payment must be submitted to SARS before the end of the month after the month in which the interest was paid.

Revised Declarations, Overpayments and Refunds

When to file a revised return?

Withholding agents may not have their clients’ correct or complete information at the time they withhold the tax. In these cases the withholding agent may need to file a revised return.

How to file a revised return?

The following options may apply:

A revised return for WTI may be needed before or after payment has been made:

If payment has not been made, then the withholding agent can file a revised return and pay the outstanding amount
If payment has already been made, the withholding agent must file the revised return and this may then result in an over or underpayment

For underpayments, the withholding agent only needs to pay the outstanding amount.

For overpayments, the withholding agent may ask SARS for the following:

Overpayment to be allocated to another debt on the WTI account
Overpayment to be allocated to another tax e.g. income tax
Overpayment to be refunded.

Withholding agents that have further obligations for WTI, in that withholding agents that expect to pay interest to parties for which WTI must be withheld, may ask SARS to do any of the above. Withholding agents that do not have further obligations for WTI may ask SARS to allocate the overpayment to another tax e.g. income tax, or ask that the overpayment be refunded.

How to claim a refund?

You will need to complete a Claim for Refund out of Revenue from and must bring the following supporting documents at the branch:

Proof of payment which could be either and original receipt or a bank statement
A signed letter from the taxpayers/representatives/tax practitioners with full details of the request, including the desired action
A power of attorney in the case of representatives/tax practitioners.

How will the refund be paid?

All refunds will be released manually, if approved and paid to the bank account where payment came from. If there is an update on banking details, the current process will have to be followed to change the banking details. The withholding agent needs to keep all supporting documents for the revised declaration.