South Africa: Tax law changes and tax compliance requirements
Limitation on interest deductions
With effect from January 1 2015 certain limitations will be imposed on the deduction of interest incurred, inter alia, by debtors in the following instances:
where the creditor is in a controlling relationship with such debtor; or
where there is no controlling relationship but where the creditor has obtained funding from a person in a controlling relationship with the debtor; and
where the interest incurred is not, inter alia, subject to South African tax in the hands of the person to which the interest accrues.
These limitations may impact on transactions where foreign funding is obtained by South African borrowers from non-resident lenders. A non-resident lender would not be subject to tax if it qualifies for the domestic interest exemption or treaty relief.
Tax compliance requirements
Government Notice No 506 published in Government Gazette No 37767 on June 25 2014 (GN 506) stipulates who is required to furnish returns for the 2014 year of assessment, inter alia:
Every person who is personally or in a representative capacity liable to taxation under the Income Tax Act; and
Every company, trust or other juristic person, which is a resident, or every company, trust or other juristic person, which is not a resident which either:
carried on a trade through a permanent establishment in South Africa, or
derived any capital gain from a South African source or which derived service income from a South African source;
Every non-resident whose gross income consisted of interest from a source in the Republic to which the provisions of section 10(1)(h) of the Income Tax Act, do not apply.
The issue arises whether the phrase "liable to taxation under the Act" includes a non-resident that earns South African sourced income but is entitled to full treaty relief from South African tax.
In terms of a SARS private binding ruling, the exemption in respect of treaties comes in after gross income. This supports the view that a non-resident which qualifies for treaty relief would not have "income" as defined and should therefore not be "liable to tax" and accordingly not be required to submit a tax return for the 2014 tax year. It should be noted that a private binding ruling only has a binding effect on SARS in respect of the applicant or co-applicant for the ruling and no third party may rely on any such ruling.
Peter Dachs (firstname.lastname@example.org)
ENSafrica – Taxand Africa
Tel: +27 21 410 2500