Invoicing to offshore clients for technical or management services? Claim back any credits correctly before it is too late!

Section ‘6quin’ foreign tax credit was introduced by SARS on 1 January 2012  – although aimed at management fees, it also includes technical fees for services rendered to a non-resident by a South African performing the work in South Africa.

Where the foreign tax is withheld, SARS has introduced a new FTW01 form which must be submitted to SARS within 60 days from the date upon which the tax was withheld from the payment to the RSA taxpayer, provided there is a Double Tax Agreement in place with the foreign country, otherwise the rebate cannot be claimed in RSA. This form requires a lot of detail on the foreign entity, their respective tax authority details and details of the specific transaction involved; supporting documents/documentary proof re the foreign taxes claimed (i.e. assessments, receipts and tax certificates) to be provided to SARS as well to substantiate the claim.

Furthermore, SARS has also introduced a limitation on the credit claimed – the lesser of the amount of RSA tax attributable to the net amount received/accrued (i.e. net profit) and the amount of tax levied/withheld in the foreign country will be allowed by SARS to offset against other RSA taxes due to SARS.

Example:
Company A provides technical advice/services to a company in Mozambique and bills them R1million. Mozambique entity withheld 10% tax and paid R900 000 net to Company A. Company A also incurred expenditure of R750 000 against this invoice.
Gross income R1million less R750 000 expenditure results in net profit of R250 000 on invoice
Tax thereon = R70 000  (R28% of R250 000)
SARS therefore limits the foreign tax credit to R70 000  (not the full R100 000 actually withheld).

Please contact Juanita Roman in our tax department to ensure you are compliant in this regard and to avoid any unnecessary lost credits!

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