Category: Part IVA – Withholding tax on royalties (ITA)

Section 49H (ITA) – Currency of payments made to Commissioner

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49H.    Currency of payments made to Commissioner

If an amount withheld by a person in terms of section 49E(1) is denominated in any currency other than the currency of the Republic, the amount so withheld must, for the purposes of determining the amount to be paid to the Commissioner in terms of section 49F(2), be translated to the currency of the Republic at the spot rate on the date on which the amount was so withheld.

[Section 49H inserted by section 63 of Act 43 of 2014 effective on 1 July 2013]

“Royalty” definition of section 49A of ITA

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“royalty” means any amount that is received or accrues in respect of-

 

(a)     the use or right of use of or permission to use any intellectual property as defined in section 23I; or

 

(b)     the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or the rendering of or the undertaking to render any assistance or service in connection with the application or utilisation of such knowledge or information.

Section 49B (ITA) – Levy of withholding tax on royalties

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49B.     Levy of withholding tax on royalties

(1)

(a)     There must be levied for the benefit of the National Revenue Fund a tax, to be known as the withholding tax on royalties, calculated-

(i)      at the rate of 15 per cent; or

(ii)     at such rate as the Minister may announce in the national annual budget contemplated in section 27(1) of the Public Finance Management Act, with effect from a date mentioned in that Announcement,

of the amount of any royalty that is paid by any person to or for the benefit of any foreign person to the extent that the amount is regarded as having been received by or accrued to that foreign person from a source within the Republic in terms of section 9(2)(c), (d), (e) or (f).

(b)     If the Minister makes an announcement contemplated in paragraph (a)(ii), that rate comes into effect on the date determined by the Minister in that announcement and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.

[Subsection (1) substituted by section 97 of Act 31 of 2013 and section 57 of Act 17 of 2017 effective on 18 December 2017]

(2)     For the purposes of this Part, a royalty is deemed to be paid on the earlier of the date on which the royalty is paid or becomes due and payable.

(3)     The withholding tax on royalties is a final tax.

(4)     Where a person making payment of a royalty to or for the benefit of a foreign person has withheld an amount as contemplated in section 49E(1), that person must, for the purposes of this Part, be deemed to have paid the amount so withheld to that foreign person.

Section 49C (ITA) – Liability for tax

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49C.    Liability for tax

 

(1)     A foreign person to which a royalty is paid is liable for the withholding tax on royalties to the extent that the royalty is regarded as having been received by or accrued to that foreign person from a source within the Republic in terms of section 9(2)(c), (d), (e) or (f).

 

(2)     Any amount of withholding tax on royalties that is-

 

(a)     withheld as contemplated in section 49E(1); and


(b)     paid as contemplated in section 49F(1),


is a payment made on behalf of the foreign person to which the royalty is paid in respect of that foreign person’s liability under subsection (1).

Section 49D (ITA) – Exemption from withholding tax on royalties

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49D.    Exemption from withholding tax on royalties

 

A foreign person is exempt from the withholding tax on royalties if-

[Words preceding paragraph (a) substituted by section 68 of Act 25 of 2015 effective on 8 January 2016]

 

(a)     that foreign person is a natural person who was physically present in the Republic for a period exceeding 183 days in aggregate during the twelve-month period preceding the date on which the royalty is paid; or

 

(b)     the property in respect of which that royalty is paid is effectively connected with a permanent establishment of that foreign person in the Republic if that foreign person is registered as a taxpayer in terms of Chapter 3 of the Tax Administration Act;

[Paragraph (b) substituted by section 68(b) of Act 25 of 2015 and by section 38(1)(a) of Act 17 of 2023 with effect 1 March, 2024 and applicable in respect of royalties that are received by or accrues to a trust that is resident on or after that date]

 

(c)     that royalty is paid by a headquarter company in respect of the granting of the use or right of use of or permission to use intellectual property as defined in section 23I to which section 31 does not apply as a result of the exclusions contained in section 31(5)(c) or (d); or

[Paragraph (c) substituted by section 38(1)(b) of Act 17 of 2023 with effect 1 March, 2024 and applicable in respect of royalties that are received by or accrues to a trust that is resident on or after that date]

 

(d)     that royalty is received by or accrued to a trust that is a resident and is then paid to a beneficiary of that trust as a distribution by that trust.

[Paragraph (d) added by section 38(1)(c) of Act 17 of 2023 with effect 1 March, 2024 and applicable in respect of royalties that are received by or accrues to a trust that is resident on or after that date]

[Section 49D inserted by section 80 of Act 22 of 2012, substituted by section 60 of Act 43 of 2014 effective on 1 July 2013]

Section 49E – Withholding of withholding tax on royalties by payers of royalties

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49E.     Withholding of withholding tax on royalties by payers of royalties

(1)     Subject to subsections (2) and (3), any person making payment of any amount of royalties to or for the benefit of a foreign person must withhold an amount of withholding tax on royalties from that payment.

[Subsection (1) substituted by section 61 of Act 43 of 2014 effective on 1 July 2013]

(2)     A person must not withhold any amount from any payment contemplated in subsection (1) –

(a)     to the extent that the royalty is exempt from the withholding tax on royalties in terms of section 49D(c); or

(b)     if the foreign person to or for the benefit of which that payment is to be made has, before the royalty is paid, submitted to the person making the payment—

(i)      a declaration in such form as may be prescribed by the Commissioner that the foreign person is, in terms of section 49D(a) or (b) or an agreement for the avoidance of double taxation, exempt from the withholding tax on royalties in respect of that payment; and

[Subparagraph (i) substituted by section 30(1) of Act 20 of 2021 effective on 1 January, 2022 and applicable in respect of royalties paid on or after that date]

(ii)      a written undertaking in such form as may be prescribed by the Commissioner to forthwith inform the person making the payment in writing, should the circumstances affecting the exemption referred to in subparagraph (i) change or should the payment of the royalty no longer be for the benefit of that foreign person.

[Paragraph (b) substituted by section 69 of Act 25 of 2015 and by section 3(1)(a) of Act 33 of 2019]

(3)     The rate referred to in section 49B(1) must, for the purposes of that subsection, be reduced if the foreign person to or for the benefit of which the payment contemplated in that subsection is to be made has, before the royalty is paid, submitted to the person making the payment-

(a)     a declaration in such form as may be prescribed by the Commissioner that the royalty is subject to that reduced rate of tax as a result of the application of an agreement for the avoidance of double taxation; and

(b)     a written undertaking in such form as may be prescribed by the Commissioner to forthwith inform the person making the payment in writing, should the circumstances affecting the application of the agreement referred to in paragraph (a) change or should the payment of the royalty no longer be for the benefit of that foreign person.

[Sub­section (3) substituted by section 3(1)(b) of Act 33 of 2019]

(4)     A declaration and written undertaking submitted in terms of subsection (2)(b) or (3) are no longer valid after a period of five years from the date of the declaration.

[Subsection (4) added by section 3(1)(c) of Act 33 of 2019 effective on 1 July, 2020]

Section 49F – Payment and recovery of tax

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49F.     Payment and recovery of tax

(1)     If, in terms of section 49C, a foreign person is liable for any amount of withholding tax on royalties in respect of any amount of royalties that is paid to or for the benefit of the foreign person, that foreign person must pay that amount of withholding tax and submit a return by the last day of the month following the month during which the royalty is paid, unless the tax has been paid by any other person.

[Subsection (1) substituted by section 62(1) of Act 43 of 2014 and by section 3 of Act 21 of 2021]

(2)     Any person that withholds any withholding tax on royalties in terms of section 49E must submit a return and pay the tax to the Commissioner by the last day of the month following the month during which the royalty is paid.

[Subsection (2) substituted by section 62 of Act 43 of 2014 effective on 1 January 2015]