On December 15, 2016 the South African Revenue Service (SARS) issued a press release announcing that the Agreement between the Government of the Republic of South Africa and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which was signed on November 23, 2015, (Hereafter: the DTA) entered into force on November 23, 2016.
The fact that the DTA entered into force on November 23, 2016 means that based on Article 29, Paragraph 2 of the DTA (“ENTRY INTO FORCE”) the provisions of this Agreement shall apply:
(a) with regard to taxes withheld at source, in respect of amounts paid or credited on or after January 1, 2017; and
(b) with regard to other taxes, in respect of taxable years beginning on or after January 1, 2017.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”), the existing taxes to which this Agreement shall apply are:
(a) in the United Arab Emirates:
(i) the income tax; and
(ii) the corporation tax;
(b) in South Africa:
(i) the normal tax;
(ii) the withholding tax on royalties;
(iii) the dividend tax;
(iv) the withholding tax on interest; and
(v) the tax on foreign entertainers and sportspersons.
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed by either Contracting State after the date of signature of this Agreement in addition to, or in place of, the existing taxes referred to in Article 2, Paragraph 3 of the DTA.
Residency
With respect to the residency of a person other than an individual, Article 4, Paragraph 3 of the DTA (“RESIDENT”) arranges that where by reason of the provisions of Article 4, Paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the Contracting State in which its place of effective management is situated.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that the term “permanent establishment” likewise encompasses:
(a) a building site, a construction, assembly or installation project or any supervisory activity in connection with such site or project, but only where such site, project or activity continues for a period of more than twelve months;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the Contracting State for a period or periods exceeding in the aggregate nine months in any twelve-month period commencing or ending in the fiscal year concerned;
(c) the performance of professional services or other activities of an independent character by an individual, but only where those services or activities continue within a Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned.
Immovable property
Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other Contracting State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property, as defined in Article 6 and situated in the other Contracting State may be taxed in the other Contracting State.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividends to:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company the capital of which is wholly or partly divided into shares which holds directly at least 10 per cent of the capital of the company paying the dividends;
(b) 10 per cent of the gross amount of the dividends in all other cases.
Article 10, Paragraph 6 of the DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 10 per cent of the gross amount of the interest.
Article 11, Paragraph 7 of the DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to 10 per cent of the gross amount of the royalties.
Article 12, Paragraph 7 of the DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 24) and regarding the Exchange of Information (Article 25).
Click here to be forwarded to the text of the DTA as available on the website of the South African Revenue Service, which will open in a new window.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs
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