Persons that are not tax resident in South Africa (“SA”) are only taxed in SA on income received by or which accrued to such non-resident from an SA source. This will include interest received on an SA bank account.1
Non-residents may, however, be exempt from SA income tax on interest earned in terms of section 10(1)(h) of the Income Tax Act. The section 10(1)(h) exemption does not apply though to the extent that the non-resident is a natural person who was physically present in SA for a period exceeding 183 days in the 12-month period preceding the date on which the interest was received by or accrued. In these circumstances, the non-resident must register for income tax and declare such SA source interest to the South African Revenue Service. The exemption will also not apply where the debt from which the interest arises is effectively connected to a permanent establishment of that person in SA2 or where the interest received is in the form of an annuity.3 The general interest exemptions in section 10(1)(i) may, however, still apply to non-residents that are natural persons.
Other than for an income tax effect, non-residents earning SA source interest can also be subject to the withholding tax on interest (“WTI”) at a rate of 15%, unless certain exemptions apply.4 This withholding rate can be reduced by an applicable double taxation agreement between SA and the foreign country where the person (who is a non-resident for SA tax purposes) is tax resident. Two exemptions from WTI may apply to non-residents receiving interest on an SA bank account. Firstly, there is a general exemption from interest received from SA banks.5 Secondly, no WTI is payable where the non-resident exceeds the 183-day threshold as set out above.6
In summary, non-residents are not subject to WTI on interest received on an SA bank account. Also, no liability for income tax will arise on condition that none of the exclusions in section 10 mentioned above applies. To the extent that any of these exclusions apply though, the non-resident will have to register for income tax in SA and submit an income tax return. An applicable double taxation agreement should also be considered as it may contain specific provisions relating to the taxation of interest and providing relief to the extent that none is afforded by the domestic legislation discussed in this article, although this will not affect the obligation to submit an income tax return to the South African Revenue Service.
1 Section 9(2)(b) of the Income Tax Act, 58 of 1962
2 Section 10(1)(h)
3 Section 10(2)(b) of the Income Tax Act
4 Sections 50A to 50D of the Income Tax Act
5 Section 50D(1)(a) of the Income Tax Act
6 Section 50D(1)(c) of the Income Tax Act
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Please feel free to contact Brian Kahn for further information or specific and detailed advice. Errors and omissions excepted (E&OE)