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Withholding Tax on Royalties

What is it?

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, but the tax must be withheld from the royalty payment by the person paying it to the foreign person (i.e. 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, or
  • Rendering of or 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%.

What steps should I take?

Where withholding tax on royalties was withheld by a withholding agent, a Return for Withholding Tax on Royalties (WTR01)form must be submitted to [email protected] with proof of payment for taxpayers that deal with Large business.

For clients that are not large business, the WTR01 return form with the proof of payment and any supporting documents can be sent to: [email protected] (for taxpayers) or [email protected] (for Tax practitioners)

Remember, when completing the WTR01, an exemption or a reduced rate may apply.

What 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.
 
Top Tip: The WTRD must be kept for five years, by the withholding agent 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.
 
Exemptions
Top Tip: Parts A,B and C of the WTRD 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.
 
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, for example where South Africa doesn’t have the right to tax royalties.
Summary of the DTA Rates:
 

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 Return for Withholding Tax on Royalties (WTR01), which is a summary of the total of all royalty payments made and tax withheld during a month, to SARS.
 
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.
 
WTR can only be paid to SARS via:
  • SARS eFiling;
  • EFT at the Bank
  • Over the counter at the bank

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Frequently Asked Questions

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