WITHHOLDING TAX ON INTEREST (WTI)
19 June 2015 - New BRS
What is WTI?
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
(which includes individuals, companies, etc.) from a source within South Africa.
The foreign person is responsible for the tax, but it must be withheld by the person making the interest payment to or for the benefit of the foreign person.
Interest paid is taxed at a final withholding tax rate of 15%.
Please note that 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 payor (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).
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.
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.
A foreign person 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 foreign person who is registered as a taxpayer in South Africa.
The WTID – Withholding Tax On Interest Declaration
must be kept for five years, by the payor, 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 payor to make sure that the declaration made by the foreign person is in the form as prescribed.
A reduced rate of tax or exemption may 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 WTID – Withholding Tax On Interest Declaration
to be submitted to the payor 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, see how to pay via eFiling.
A payor must submit the Return for Withholding Tax on Interest (WT002), 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.
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?
SARS will need a reconciliation summary of all the WTI payments made for the year. This is where you will declare who you withheld tax from.
Please note: The first reporting period is due by the end of May 2016 for the 12 month period (year) ending February 2016.