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Non Residents

This chapter discusses the taxation of non-residents in South Africa, highlighting the difference between residents and non-residents regarding income tax. Non-residents are taxed on income sourced within South Africa, including interest, dividends, royalties, rental income, and services rendered, with certain exemptions and withholding tax requirements. The document outlines the determination of the source of income and the applicable tax implications for various types of income earned by non-residents.

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4 views24 pages

Non Residents

This chapter discusses the taxation of non-residents in South Africa, highlighting the difference between residents and non-residents regarding income tax. Non-residents are taxed on income sourced within South Africa, including interest, dividends, royalties, rental income, and services rendered, with certain exemptions and withholding tax requirements. The document outlines the determination of the source of income and the applicable tax implications for various types of income earned by non-residents.

Uploaded by

fundilesibiya33
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Non-Residents

CHAPTER 7
INTRODUCTION
As a result of globalisation the world has become
a small place and people trade and invest their
money all over the world
Just as South Africans invest offshore, people
from other countries will invest in South Africa
This chapter will discuss whether an amount
received by or accrued to the non-resident is
taxable in the Republic.
Must differentiate between ‘Resident’ and ‘Non-
resident’
Residents taxed on world-wide income
Non-residents taxed on income from a source
within RSA
Most common types of income earned by non-residents:
Interest
Dividends
Royalties
Rental income
Services rendered
Sale of trading stock
Sale of immovable property

Certain types of income earned by non-residents are


subject
to a withholding tax
Person paying the non-resident deducts withholding tax
before paying the non-resident
NON-RESIDENTS
Non-resident is any person who is not considered a
“resident” for income-tax purposes
FROM A SOURCE IN THE REPUBLIC
No definition of “source” in the Act. Courts
formulated tests
to determine the source
SOURCE MEANS ORIGIN, NOT PLACE
After the source has been determined, the problem
is to
locate where it is situated
Two step process, namely:
 ascertaining the originating cause of the income
(“source”); and
 locating this source (in the Republic or not)
ASCERTAINING SOURCE IS A PRACTICAL, HARD
MATTER OF FACT
In Rhodesia Metals Ltd v COT: “source” is not a
legal concept but what the man on the street
would regard as being the actual source of
income
It’s a factual question that can change from case
to case
PLACE WHERE THE CAPITAL IS EMPLOYED
DETERMINES THE SOURCE
In Rhodesia Metals Ltd Liquidator v COT: where
the capital is used, and not where the “brain” of
the company is
PLACE WHERE THE CONTRACT IS CONCLUDED
Place where the contract is concluded is the
place where the last signature is appended
THE DOMINANT SOURCE,THE SOURCE OF
INCIDENTAL
INCOME AND MULTIPLE SOURCES
If one of the activities can be said to be
dominant, the place at which this activity is
carried out will be the dominant source
Source of incidental income will be located at the
source of the main activity
RECEIPTS OF NON-RESIDENTS
Different types of income earned by non-residents
1.INTEREST
True source
granting of credit was the service the lender performed
for
the borrower and for which the borrower paid interest
granting of credit is therefore the originating
cause/source
of interest, not debt itself
place where credit is made available will determine the
location of the source

Moneylenders: source is where the financial institution


carries on business
Exemptions
non-resident person is physically absent from
RSA for a total period of 183 days during y/a
AND is not carrying on business through a
permanent establishment in RSA; OR
receives interest as an annuity

Withholding tax
Subject to 15% withholding tax
2. DIVIDENDS
True source
is the share for which dividend is declared and
source is where share is registered
Exemptions
Exempt
3. ROYALTIES
True source
activities test determines source
place where taxpayer exercise his wits and
labour in developing the asset
purchased patent and trademarks, taxing the
royalties will differ from the source rules (source,
look at purchase agreement for the right of use
OR the business of the owner of the rights OR
the employment of the capital used to acquire the
rights)
Any amount that is received/accrued to a non-
resident for:
the use of, or right of use, in RSA or the renewal
or the grant of permission to use in RSA:
 any patent, design, trade mark, copyright, or a
model, pattern, plan, formula or process or any
other property or right of a similar nature; OR
 any motion picture film, or any film or video tape
or disc for use in connection with television, or any
sound recording or advertising matter used or
intended to be used in connection with the motion
picture film, film or tape or disc
wheresoever it has been purchased, or made or
such right of use or permission has been granted
or payment for such use has been made or is to be
the imparting of any scientific, technical,
industrial; or commercial knowledge or
information for use in RSA or the rendering of
any assistance or service in connection with the
application or utilisation of such knowledge or
information
is deemed to be from a source in RSA

RSA will be the source if the person paying the


royalties is a resident
 royalties relate to right of use/granting of
permission to use intellectual property within RSA
 all other royalties are from a source outside
Withholding tax
Use or permission to use in RSA
Withholding tax at 15% on gross amount
received by non-resident
It’s a final tax
Responsibility of person paying the tax to deduct
the tax
No deductions for expenditure/allowances may
be claimed against the royalty income

Example 7.1
4. RENTAL INCOME
True source
Immovable property: Place where property is situated
Movable property: where the business of the lessor is
situated or where movable property is used

5.SERVICES RENDERED
True source
Place where the service is rendered or work is
carried out
Any service rendered by any South African
government
department or certain government institutions is also
included
Pensions, lump sum benefits and annuities
taxed if worked in RSA and pension was earned
here
pension is apportioned according to number of
years worked in RSA to the total number of
years worked
Know-how payments
made by a resident or relate to business
activities within RSA, source = RSA source
Exemptions
salaries of officials from foreign governments
stationed in RSA and not ordinarily resident in
RSA (salaries of their domestic workers that are
pension for employment outside RSA
officers/crew members of a ship is exempt where
the ship is involved in international
transportation of passengers/goods or ship is
involved in mining of any minerals from the
seabed outside the continental shelf of RSA
remuneration for work done outside on behalf of
any employer in the national or provincial sphere
of Government or municipality
visiting entertainers and sports people if income
is subject to a withholding tax
Taxation of foreign entertainers and sports persons
(s47A-47K)
appear for a fee in RSA, withholding tax is levied
calculate on gross payment made to the non-
resident at 15%
withholding tax NOT applicable if:
 person is an employee of an employer who is a
resident; or
 person is in RSA for more than 183 days during
the withholding tax and the prescribed form must be paid
to SARS before end of month that follows the month in
which amount was deducted
resident who fails to deduct the tax will be personally
liable for the tax due
person who will be organising the event must inform
SARS within 14 days of signing the contract that person
is coming
Example 7.2
Example 7.3
Example 7.4
Example 7.5

6. SALE OF TRADING STOCK


True source
where the activities were carried out

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