Consideration provisions are contained in Section 9 of the Income Tax Act to provide clarity in specific circumstances. In most cases the full effect of RBT is contained in section 1 of the Income Tax Act.
OTHER MAJOR CHANGES TO THE LEGISLATION
THE PRINCIPLES ON WHICH RESIDENCE BASED TAX WILL OPERATE
RESIDENTS AND NON RESIDENTS
THE FOLLOWING PERSONS ARE DEFINED AS BEING A RESIDENT
DEFINITION OF A RESIDENT 'Resident' means any-
ORDINARILY RESIDENT
What and where are his/her family and social contacts (eg school, church and sports club). What are his/her periods traveled abroad and what is usually the nature of the visit.
PHYSICAL PRESENCE TEST
WHEN A RESIDENT CEASES TO BE A RESIDENT
IMPLICATIONS FOR RESIDENTS WHO LIVE AND WORK IN RSA
IMPLICATIONS FOR RSA RESIDENTS WHO RECEIVE INCOME FROM ABROAD
However, branch income is exempt if such income was subject to tax in a designated country at a statutory rate of at least 27%. A non-resident is liable to pay tax on his SA income under national law unless the DTA overrides this.
IMPLICATIONS FOR NON RESIDENTS RECEIVING ANY INCOME FROM A SA SOURCE
Foreign income of a resident company, for example income attributable to a foreign branch, will generally be subject to tax. Any income not taxed at that rate (27%) in a designated country will be taxable in SA and a credit will be granted in respect of any foreign tax proved to be payable in respect of such income in terms of section 6quat of the Income Tax Act.
IMPLICATIONS FOR NON RESIDENT COMPANIES I TRUSTS THAT RECEIVE INCOME FROM SA SOURCE
- BRANCHES
- BUSINESS PROFITS
B is considered a resident in respect of the 2002 year of assessment (disregarding the information regarding the 2003 year of assessment). Number of days, in total, physically present in the Republic during each year of the three years of assessment preceding 2002.
SOURCE
- APPORTIONMENT
- ANNUITIES
- DIRECTOR'S FEES
The original cause of the income, that is what gives rise to the income; And. The place where the proposal was accepted by the company is regarded as the situation of the source.
1927) 3 SATC 72
- DIVIDENDS
- EMPLOYMENT AND SERVICES RENDERED
- PARTNERSHIP ACTIVITIES
- RENT
- ROYALTIES
- DEEMED SOURCE
- ALIMONY AND MAINTENANCE
- DIVIDENDS ON AFFECTED INSTRUMENTS
- PENSIONS: GOVERNMENT SERVICES
- PENSIONS: NON -GOVERNMENT SERVICES
- SERVICES RENDERED ABROAD FOR GOVERNMENT AND OTHER BODIES
- DEEMED SOURCES THAT WERE DELETED
Services performed outside the Republic, the resulting income of which is deemed to arise from a source in the Republic under Article 9(1)(fA) of the Income Tax Act, shall be deemed to be for the purposes of Article 9 have been granted in the Republic. (1 )(g)(ii) and section 9(1A) of the Income Tax Act. A specified amount arising from services rendered by a person in the exercise of a profession in the Republic;
IMPLICATIONS
- RESIDENTS WHO LIVE AND WORK IN THE RSA
- RSA RESIDENTS WHO RECEIVE INCOME FROM ABROAD
- RESIDENT OF A CONTRACTING STATE
- NON - RESIDENTS
- SALARY INCOME
- PENSIONS
The services provided in Hong Kong are not on behalf of the University of SA. It follows from this that any income of the nature described in section 9 of the Income Tax Act, subsection 1, letter e, is included in a foreigner's gross income. There is no need to apply the discretionary provisions in section 9, subsection of the Income Tax Act.
Section 10(1)(o)(ii) of the Income-tax Act prohibits the application of the exemption in respect of remuneration arising from the performance of a function or services rendered on the basis provided for in section 9(1)(e) of the Income-tax Act . Although s 9(1)(e) of the Income Tax Act played no role in determining Mr A's gross income, the type of office/services he carries out is in line with the type contemplated by s 9(1)(e) of the Income Tax Act and it follows that the exemption from payment from Article 1O(1)(0) of the Income Tax Act does not apply. The real source of income is where the services were performed (Finland), but the provisions of section 9(1)(e) of the Income Tax Act would be relevant.
EXEMPTIONS
- SOCIAL SECURITIES AND FOREIGN PENSIONS
- SERVICES RENDERED BY A RESIDENT ON BEHALF OF ANY EMPLOYER OUTSIDE OF RSA
- GOVERNMENT SERVICES I PUBLIC ENTITY
- TYPES OF INVESTMENT INCOME
- INTEREST INCOME
- RENTAL INCOME
- DIVIDENDS
- ANNUITIES
- ROYALTIES
- FOREIGN DIVIDENDS
- DEDUCTIONS
- MEDICAL AID CONTRIBUTIONS
- GENERAL DEDUCTIONS
- DEDUCTIBILITY OF INTEREST AGAINST FOREIGN DIVIDENDS
- DEPRECIATION
- SECTION 8(4) OF THE INCOME TAX ACT- RECEIPIENTS
- ASSESSED LOSSES
The exemption previously provided for in Article 10(1)(hA) of the Income Tax Act is now limited to non-residents. The provisions of Section 11 (gA) of the Income Tax Act have been expanded to include patents, copyrights, etc. The tax referred to in Section 35 of the Income Tax Act is now a final withholding tax.
Section 9E of the Income Tax Act was introduced to regulate the taxation of foreign dividends. Foreign dividends which are taxable within the meaning of section 9E of the Income Tax Act are excluded from the dividend exemption within the meaning of section 10(1)(k)(i). Foreign dividends declared from profits already subject to normal tax in the hands of the shareholder.
DOUBLE TAXATION AGREEMENTS
INTRODUCTION TO DOUBLE TAXATION AGREEMENTS (DTA's)
The practical effect of the foregoing is that, even if tax is payable in South Africa or only a portion of it is payable. There was an argument that, from a constitutional point of view, the provisions of the Act and OTA would have to be interpreted in such a way as to give effect to the aims and purpose of the relevant provisions. Similarly, section 6 quat of the Income Tax Act provides for a rebate in respect of foreign tax paid on foreign income deemed to be from a South African source.
The prevention, mitigation or discontinuation of taxation by both governments with respect to the same income, profit or gain, or donations; or. To provide mutual assistance in the administration and collection of taxes under the laws of the two territories. The obligation of confidentiality in tax matters does not prevent disclosure to an authorized official of the territory with which an agreement has been concluded of facts and knowledge that must be made public.
BASIC PRINCIPLES FOR TAXING RIGHTS IN ANY OTA
To determine whether immunity, relief or relief should be granted under the agreement, or. DTAs are international agreements generally governed by the Vienna Convention on the Law of Treaties of 23 May 1969. Any salary income received by or accrued to a non-resident natural person will be taxed in his/her hands only if it income came from a source within (or is deemed to be within) the Republic.
She earned R500,000 for this performance, and the payment was deposited into her bank account in London. There are indeed - Article 16 of the DTA (signed between South Africa and Great Britain) would confirm South Africa's right to tax her on this earned income.
THE EFFECT OF DTA'S ON RESIDENTS
Where the taxpayer is a resident of a Contracting State other than South Africa for the purposes of the DTA, the provisions of the agreement(s) will have to be followed before any income is taxed. Definition of a resident of a Contracting State as defined in paragraph 1 of Article 4 of the Model GECD. If, due to the provisions of the first paragraph, an individual is a resident of both contracting states, his status is determined as follows:
He is only deemed to be a resident of the State in which he has a permanent residence at his disposal; if he has a permanent residence available to him in both States, he is deemed to be a resident only of the State with which his personal and economic relations are closer (centre of life interests);. Where a person other than an individual is, by virtue of the provisions of paragraph 1, a resident of both Contracting States, he is deemed to be a resident only of the State in which his place of effective management is situated. The problem of international double taxation arises because of the different ways in which different countries levy taxes.
REBATE FOR FOREIGN TAXES
- INTRODUCTION
- CONDITIONS GOVERNING THE GRANTING OF A REBATE
- THE TAXES MUST BE PAYABLE ON INCOME
- THE TAXES MUST BE PAYABLE TO FOREIGN GOVERNMENT
- THE TAXES SHOULD BE PROVED TO BE PAYABLE IN RESPECT OF AN EXISTING FOREIGN TAX LIABILITY
- THE TAXES MUST BE PAYABLE WITHOUT ANY RIGHT OF RECOVERY BY ANY PERSON
- QUALIFYING AMOUNTS OF INCOME DERIVED FROM FOREIGN SOURCES
- CALCULATION OF THE REBATE
- CARRY FORWARD OF FOREIGN TAX CREDITS
- THE RIGHT OF A RESIDENT TO CHOOSE BETWEEN THE RELIEF PROVIDED FOR IN EITHER SECTION 6 QUA T OR A TREATY
- HOW SECTION 6 QUAT AFFECTS TRUSTS
- THE CONVERSION OF FOREIGN TAX CREDITS TO RANDS
- CONVERSION RULES
The gross amount of foreign income before deducting foreign tax must be included in the resident's taxable income, the only exception to this rule being in respect of foreign dividends where the resident can in terms of section 9E(6) of the income The Tax Act chooses to be taxed on the net amount (after withholding taxes). Normal tax refers to South African tax calculated on taxable income before deducting section 5 deductions of the Income Tax Act (ie initial and age deductions). If no election is made, the provisions of section 6qua of the Income Tax Act shall apply.
Section 25D of the Income Tax Act now provides that depending on the circumstances, the foreign income should. Other income: On the last day of the assessment year (this is specified in Article 250 of the Income Tax Act). Since the lady received a salary (other income), s25D of the Income Tax Act states that the amount must be converted to Rand on the last day of the year of assessment.
OTHER RELATED PROVISIONS
- TRUSTS
- ROYALITIES AND SIMILAR PAYMENTS
- SECONDARY TAX ON COMPANIES (STC)
- DIVIDENDS
- DEEMED DIVIDENDS
- FOREIGN TAX CREDITS
- INTRODUCTION
- COMPUTATION
- EXCLUSIONS
- THE 10% RULE
- DESIGNATED COUNTRY
- BUSINESS ESTABLISHMENT
- SOUTH AFICAN TAXABLE INCOME
- DIVIDENDS
- INTEREST, ROYALTIES OR RENTAL
- REPORTING IN TERMS OF SECTION 72A OF THE INCOME TAX ACT
If this is included, the beneficiary is entitled to a pro rata amount of the tax paid by the non-South African resident trust. In order not to overturn this exclusion, dividends declared by the CFE are also treated as exempt income of the South African resident shareholders, in accordance with section 9E. Strict reporting has been introduced of both the participation rights of South African residents in a CFE and the income of the CFE.
There is some relief in that the reporting requirements only apply to the resident who holds the largest percentage of the participation rights in the CFE. The percentage and class of participation rights held by any other South African resident (being a connected person in relation to the resident) who directly or indirectly owns 10% or more of the participation rights in the CFE. A description of income and accruals of CFE that are included in and excluded from the income of the South African resident under section 90; and.
INTERNATIONAL ASPECTS OF SOUTH AFRICAN LEGISLATION
South African companies (and individuals) have historically operated on the assumption that due to the source basis of taxation and the exemptions for dividend income and capital gains, offshore profits they earned would be subject to one level of taxation at most - in the foreign jurisdiction. Should there be any foreign capital gains tax consequence on disposal of the investment has been identified from a foreign perspective, this must be coordinated with the most appropriate structure from the South African perspective for outward investment. In which circumstances it is still possible to avoid South African tax on income (and potentially also on capital gains) in a tax haven or low-tax offshore subsidiary until dividends are paid back to South Africa in the light of the controlled foreign entities (section 90).
South African resident individuals are also not immune from the cross-border interaction of the South African tax system. The move to the residence tax base will have a dramatic impact on any South African resident taxpayer deriving foreign income. Although future foreign earnings will fall within the South African tax net, the earnings may qualify for an exemption or exemption.
Bibliography
Acts, Books and Reports, Interpretation Notes and Journals
Cases
