What is withholding tax?
Withholding tax, also know as non-residents tax or retention tax, is defined by the nature of the tax. Governments require the bank or the payer of the funds, the withholding agent, to retain a percentage of the funds paid to foreigners. The withheld amount is then paid, by the withholding agent, to the countries tax authority. The payer is therefore responsible for withholding the funds and not the payee.
The payee, or recipient of the funds, would need to be resident in a different country from where the payment is being made. This non-resident could be an individual having received employment income or a company having rendered services. The service rendered would need to have taken place in the country wanting to withhold taxes.
Put simply, if you provide a service in another country you will have to pay withholding tax.
There are certain exemptions from withholding tax. These differ in each country.
Can you claim back withholding tax?
Make sure you obtain the withholding tax certificate from the payer. This certificate can be used to reduce your income tax in your country of residence. For example: You provided a service to a company in Tanzania. You are a resident in South Africa. When the company pays you, or your company, for the service rendered, the withholding agent retains 20% of the invoice to pay to the local tax authority.
When your tax return is submitted, you can declare the foreign tax credits and withholding tax credits and thereby reduce your tax due on taxable income.
Remember withholding tax is levied on Turnover/Fees, so the effective tax deductible from tax on profits is higher than expected.
What are the withholding tax rates in East and Southern Africa?
Withholding taxes are applied at different rates depending on what is being taxed. Services, sale of immovable property, dividends, interest and royalties. All need to be considered for the different rates. The table below is an example of withholding tax rates on services rendered, without any exemptions applied.
|Botswana||15%||Botswana (BURS), Withholding Tax|
|Kenya||20%||Website not accessible.|
|Malawi||20%||Website not accessible.|
|Mozambique||20%||Website not accessible.|
|South Africa||15%||Website not accessible.|
|Swaziland||15%||Swaziland (SRA), Withholding Tax|
|Tanzania||20%||Website not accessible.|
|Zambia||15%||Website not accessible.|
|Zimbabwe||15%||Website not accessible.|
SADAC Region exemptions
There is a drive on between the SADAC region countries to reduce or remove restrictions on trade within the region. This has led to certain exemptions or reductions in the withholding tax of SADAC region countries. For example, withholding tax on trade between South Africa and Mozambique is agreed to be 5%, provided all the necessary documentation has been filed with the respective revenue authorities. Similar agreements are emerging and are likely to be in place across the SADAC region in the next few years.Take a look at a recent article on the new Double Tax Agreement South Africa and Mauritius. New DTA