Tax amendment hits non-resident service providers

South Africa has historically never imposed a withholding tax on service fee payments made to non-residents who perform services in this country, according to Dale Cridlan, a Durban-based director of the international legal firm Norton Rose Fulbright. “However,” he told FTW, “the Income Tax Act, 1962 was recently amended. And that means that, from January 1, 2016, a withholding tax on service fees will apply at the rate of 15% on fees paid or which become due and payable on or after that date.” The withholding tax is applicable for fees for technical, managerial and consultancy services earned by a non-resident from an SA source. “For example,” Cridlan added, “a non-resident service provider may be engaged by an SA transport operator to perform certain technical or consultancy services in this country. The SA transport operator will be required to withhold 15% of any payment made to the non-resident for these services, and to pay this amount over to the SA Revenue Service (Sars).” However, there are certain exemptions which apply and where no withholding tax will be required. According to Cridlan, one example of this is where the non-resident service provider is physically present in SA for more than 183 days during a 12-month period preceding the date of payment of the service fee. “In addition,” he said, “the non-resident service provider may be able to avail himself of one of the many doubletaxation agreements that SA has concluded with foreign jurisdictions – which may reduce the withholding tax rate to 0%.” Cridlan also notes that some commentators have argued that the withholding tax on service fees will be cumbersome to manage. “It remains to be seen what systems and processes Sars will put into place to ensure that this tax is administered efficiently,” he said.