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COVID-19: Beneficial ownership declarations and written undertakings

6 July 2020
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Various provisions of the Income Tax Act, 1962, dealing with withholding taxes, require beneficial ownership declarations and written undertakings to be submitted by the beneficial owner of the interest, royalties or dividends, to the person paying the interest, royalties or dividends, in order to be exempt from the applicable withholding tax or for a reduced rate of withholding tax to be applied.

The Tax Administration Laws Amendment Act, 2019, introduced amendments with the effect that beneficial ownership declarations and written undertakings for withholding tax purposes will only be valid for a five-year period from their date of issue. The amendments were due to come into effect on 1 July 2020. 

The Draft Disaster Management Tax Relief Administration Bill, 2020, released on 1 April 2020, extended the effective date of the amendment to 1 October 2020 for the withholding of dividends tax purposes only, and only in respect of a dividend declared which does not constitute a distribution of an asset in specie. At the time, questions were raised as to why the draft bill only extended the date in respect of dividends tax and more specifically cash dividends.

However, the latest Draft Disaster Management Tax Relief Administration Bill, released on 24 June 2020, has now also extended the date in respect of the withholding tax on interest, the withholding tax on royalties, and the withholding of dividends tax by regulated intermediaries and in respect of a distribution of an asset in specie.

Accordingly, for now, any declarations or undertakings which were issued more than five years ago, are still valid for the purposes of claiming a withholding tax exemption or a reduced rate of withholding. From 1 October 2020, beneficial ownership declarations will, in certain circumstances, only be valid for a period of five years from the date of issue.