A foreign company has an agreement(Loan/Supplier of goods) with a local company and the foreign company is also a shareholder of the local company. The foreign company is charging interest on a loan or the supplier account. The foreign company doesn’t hav
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
In terms of section 50B(1), of the Income Tax Act, the withholding tax on interest, calculated at the rate of 15 per cent (or at such rate announced by the Minister may in the national annual budget), of the amount of any interest 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 or accrued from a source within the Republic in terms of section 9(2)(b). A tax reference number, of the foreign purpose, is not relevant for purposes of the withholding tax.
Remember that a lower rate may be applicable if the foreign company has made the necessary declaration that a lower rate applies as a result of the application of a double taxation agreement between the RSA and the country of residence of the foreign company.
Section 50B(2) deals with the meaning of the word ‘paid’ and reads as follows:
“(2) For the purposes of this Part, interest is deemed to be paid on the earlier of the date on which the interest is paid or becomes due and payable.”
You indicated that the “interest has not yet been paid to the foreign company” and also that “the interest has been used as a deduction”, presumably at the arm’s length rate (section 31). We are not sure, but it is possible that this indicates that the interest was ‘due and payable’ and the withholding obligation then arose at the time it became due and payable. So, it is not the date of accrual, but the ‘due and payable’ date that is relevant.