Is Double Taxation Legal in South Africa

The contract provides that the land in which the property is located may tax income from the direct use, rental or use in any other form of such immovable property. The provisions allowing withholding tax also apply to a company`s income from immovable property and income from immovable property used for the provision of independent personal services. The bilateral tax treaty between the United States and South Africa on the elimination of double taxation entered into force in 1998. The United States and South Africa signed a new bilateral tax treaty in June 2014 to implement the U.S. Foreign Asset Tax Compliance Act, which came into effect in October 2015. If one country has correctly reassessed the tax payable, the other country will make an appropriate adjustment to the amount of tax levied in that country on the newly determined income if it accepts the adjustment. This adaptation shall take due account of the other provisions of the Treaty and the competent authorities of the two countries shall consult each other, where appropriate. For example, under the article on mutual agreement (Article 25), such a correction cannot necessarily be refused on the ground that the time limit laid down by national law for the request for reimbursement has expired. To avoid double taxation, the savings clause of the proposed agreement, which retains full U.S. fiscal sovereignty over its citizens and residents (discussed above in the context of Article 1 (General Scope)), does not apply in the event of such adjustments. In the case of South Africa, the Treaty defines the term “resident of a Contracting State” as any natural person who has his habitual residence in South Africa and any legal person registered in South Africa or having his place of effective direction in South Africa.

The Agreement contains a provision that is generally intended to limit the indirect use of the Agreement by persons who are not entitled to its services because of their residence in the United States or South Africa. The agreement aims to limit double taxation caused by the interaction of the U.S. and South African tax systems, as they apply to residents of both countries. Sometimes, however, third-country residents try to use a contract. This use is called “contract purchase,” which refers to the situation in which a person who is not resident in one of the two countries enjoys certain benefits under the tax treaty between the two countries. In certain circumstances and without adequate safeguards, the non-resident may be able to obtain these benefits indirectly by setting up a company (or other entity) in one of the countries whose institution, as a resident of that country, is entitled to the benefits of the contract. In addition, it may be possible for a third-country national residing in a third country to reduce the income base of a Contracting State by paying interest, royalties or other deductible amounts on favourable terms, either by relaxing the tax provisions in the country of distribution or by transferring the funds through other contracting countries (essentially always in the contract shop). until the funds can be repatriated on favourable terms. Like all U.S. income tax treaties, the deal is subject to an “austerity clause.” The treaty`s austerity clause is formulated unilaterally in such a way that it applies only to the United States.

The technical declaration states that South Africa has chosen not to apply the savings clause for tax purposes. According to this clause, with a few exceptions, the contract is not intended to affect the U.S. taxation of its residents or citizens. As a result of this savings clause, unless expressly provided otherwise in the Treaty, the United States will continue to tax its citizens residing in South Africa as if the Treaty were not in force. The term “residents” within the meaning of the Treaty (and thus for the purposes of the savings clause) refers to companies and other entities, as well as natural persons who are not treated as residents of the other country in accordance with the provisions of the draft Treaty on Double Residents (as defined in Article 4 (residence). A decision of the court shall have effect and shall be enforceable unless it is set aside by a higher court […].