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South Africa: Cash-flow issues relating to withholding tax on dividends, interest, royalties (COVID-19)

South Africa: Cash-flow issues, coronavirus

Taxpayers in South Africa need to be aware of any agreements or declarations that may give rise to withholding taxes on dividends, interest or royalties in light of the cash-flow challenges relating to the coronavirus (COVID-19) pandemic.


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In particular, taxpayers will want to determine that the liability for these withholding taxes does not arise prior to cash being available to settle these tax liabilities. A key tax principle is that liability for withholding taxes is triggered on the earlier of the date that the dividend, interest or royalty is paid and the date when it becomes “due and payable.” This means that it is possible for the withholding tax to be due to the South African Revenue Services (SARS) before the dividend, interest or royalty is actually paid.

The phrase “due and payable” is not defined in the income tax law, and there is case law addressing the meaning of the term. The position of SARS is that for an amount to be due and payable, the amount must be owed and the recipient must also have a right to claim payment of the amount. Thus, an amount becomes “due” when the stipulated date for payment has arrived. This is the position of SARS across the spectrum of withholding taxes (i.e., in relation to dividends, interest and royalties).

The withholding obligation will only arise when both conditions are met (the withholding tax must be both due and payable). Businesses therefore need to be mindful during the “lockdown period” of the details of any agreements that give rise to withholding tax obligations.

The following is a simple example illustrating the implication of the term “due and payable” given the cash-flow implications of COVID-19.

B (a non-South African resident) loans an amount to Company D (a South African resident taxpayer) on 1 March 2019. In terms of the written loan agreement, B is entitled to interest of 5% per annum on the loan balance, payable annually on 1 April. Interest is determined monthly and capitalised to the loan account.

Because of COVID-19-related cash-flow issues, Company D does not have the cash reserves to pay the interest on 1 April 2020. In this situation, even though the interest has not yet been paid on 1 April, interest withholding tax will still be triggered on 1 April 2020 because this is when the interest became due and payable. The withholding tax on interest (15%) will need to be paid to SARS by 31 May 2020 (subject to any relief in terms of a relevant double tax agreement). This tax, as well as penalties and interest that may be levied by SARS if the withholding tax is not paid when it is due, can be a cash- flow management issue.

Read an April 2020 report [PDF 338 KB] prepared by the KPMG member firm in South Africa

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