Under the income tax act, section 31(3), South Africa provide that any adjusted amount for transfer pricing and thin capitalization purposes, prior to 1 January 2015, constituted a deemed loan.
The adjusted amount plus interest deemed to have accrued on it, not have been repaid to the taxpayer by the relevant non-resident connected person by 31 December 2014, the outstanding “deemed loan” must be deemed to be a dividend consisting of a distribution of an asset in specie, that was declared and paid by that resident to that other person on 1 January 2015”. Such deemed dividend will be subject to Dividends Withholding Tax (“DWT”), at a rate of 15% for which the SA resident taxpayer will be liable as per section 64EA(b).
The dividends withholding tax must be remitted to the South Africa tax administration (SARS) by last day of the month, following the month during which the dividend is paid.
