[FAQ] Withholding tax calculation for foreign sportspersons

This article is based on tax law for the year ending 28 February 2021.


A taxpayer is a company whose main business activity is sports events. NRO1 applications have been done for the foreign sportspersons since section 47A-K of the Income Tax Act came into effect. These foreign sportspersons are managed by a company in the Netherlands who invoices the taxpayer for the following for each of the foreigners: appearance fees, international incentive travel costs & prize money.

In the calculation of the withholding tax the taxpayer includes all of the above except the travel costs which were reimbursed. In the past SARS issued a tax clearance certificate based on the above. Now SARS is saying that the reimbursement of the travel costs should be included.

What is the correct interpretation of the amounts to be included?


The Income Tax Act

Section 47A of the Income Tax Act provides the following definition to the extent relevant to your enquiry:

“'specified activity’ means any personal activity exercised in the Republic or to be exercised by a person as an entertainer or sportsperson”.

Section 47B(1) provides for the imposition of the tax on foreign entertainers and sportspersons, “in respect of any amount received by or accrued to any person who is not a resident…in respect of any specified activity exercised or to be exercised by that person”.

Section 47B(2) imposes the 15% final tax on “all amounts received by or accrued to a taxpayer as contemplated in subsection (1)”.

Turning to the taxpayer’s situation, the reimbursement of travel costs is an amount, received by or accrued to the sportsperson, in respect of a specified activity. A significant fact is that the tax is a final tax; this implies that no deductions are permitted. (We find a similar provision in Part IVA, the withholding tax on royalties. The withholding tax is on the amount of the royalty. The withholding tax is a final tax per section 49B(3). Here again, the recipient is not permitted to deduct any expense in relation to the royalty.)

Therefore, the reimbursement of the travel costs should be included. The taxpayer should consider changing the arrangement so that the taxpayer bears the travel cost and claims it as a deduction.

Webinar Commentary

Refer to webinar commentary on the Fairness for All with the Office of the Tax Ombud 2021 here.

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