Page 557 - SAIT Compendium 2016 Volume2

IN 63 (2) Income Tax acT: InTeRPReTaTIon noTes IN 63 (2)
12. Withholding tax on interest (section 50H)
Section 50B provides for a withholding tax on interest of 15% on any interest that is paid or that becomes due and payable on or after 1 March 2015 by any person to or for the bene t of any foreign person to the extent that the amount is regarded as having been received or accrued from a source within South Africa under section 9(2)(b). The withholding tax on interest must generally be withheld by the person making the payment to or for the bene t of the foreign person and be paid over to the Commissioner. Section 50H provides that when an amount withheld by a person is denominated in a foreign currency, the amount so withheld must, for the purposes of determining the amount to be paid to the Commissioner, be translated to rand at the spot rate on the date on which the amount was so withheld.
13. Withholding tax on services (section 51H)
Legislation on the withholding tax on services is contained in Part IVC of Chapter II (sections 51A to 51H) of the Act and applies to service fees that are paid or become due and payable on or after 1 January 2016. Section 51H provides that when an amount withheld by a person is denominated in a foreign currency, the amount so withheld must, for the purposes of determining the amount to be paid to the Commissioner, be translated to rand at the spot rate on the date on which the amount was so withheld.
14. Blocked foreign funds (section 9A)
Section 9A provides relief when an amount denominated in a foreign currency which forms part of – • the income of a person for a year of assessment; or
• the net income of a CFC for a foreign tax year,
may not be remitted to South Africa during that year of assessment as a result of currency or other restrictions or limitations imposed under the laws of the country where the amount arose.
Section 9A(1) provides that when an amount of income of a person for a year of assessment may not be remitted to South Africa during that year of assessment for the reasons mentioned above, that amount must be deducted from that person’s income for that year.
Under section 9A(2) the amount deducted from income is deemed to be an amount received or accrued in the following year of assessment.
Example 17 – Application of section 50H
Facts:
A foreign company lent USD100 000 to a resident company which used the money to fund its South African operations. Interest of USD15 000 was paid by the resident company to the foreign company on 15 March 2015.
The spot rate on 15 March 2015 was USD1 = R10,7606.
Result:
The withholding tax on interest payable to the Commissioner amounts to R161 409 (USD100 000 interest × 10,7606 exchange rate × 15% rate of withholding tax).
Example 18 – Application of section 9A(1) and (2)
Facts:
A resident owns a block of ats in Country Z. Rental income derived from the property in year 1 amounted to Z$10 million. Under restrictions enforced by the government of Country Z, Z$1 million could be remitted to South Africa in year 1 but the remittance of the remaining Z$9 million was blocked.
Approval for the remittance of the remaining Z$9 million was given in year4.
The applicable spot rate on the date on which the rental income accrued to the resident was R1 = Z$250. The spot rate on the date on which the restrictions on remitting the blocked funds was lifted was R1 = Z$400.
Result: Year 1
The rental income which accrued to the resident in rand terms amounts to R40 000 (Z$10 million / Z$250). This amount forms part of the resident’s gross income in the year of receipt or accrual. The portion of the rental income that is blocked amounts to R36 000 (Z$9 million / Z$250). This amount must be allowed as a deduction against the resident’s income in year 1.
Effectively R4 000 (R40 000 – R36 000) is taxed in year 1. It represents the rental income which may be remitted to South Africa irrespective of whether the amount is actually converted to rand or remitted to South Africa.
Year 2
The amount allowed as a deduction in year 1, namely, R36 000, must be added to income in year 2. Since this amount may again not be remitted to South Africa it will be allowed as a deduction from income in year 2.
The net tax result in year 2 is R Nil.
Year 3
The tax effect in year 3 is the same as in year 2.
Year 4
The amount allowed as a deduction in year 3, namely, R36 000, is included in the income of the resident in year 4. Since the restrictions on this amount are lifted in year 4, no deduction is allowed under section 9A(1) in year 4 irrespective of whether the amount is actually remitted to South Africa or converted to rand in year 4. The only relevant factor is that the underlying restrictions have beenlifted.
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