On 18 September 2024, Kuwait ratified the protocol to its double tax agreement with South Africa (Kuwaiti DTA).
The protocol will enter into force on the later of either Kuwait or South Africa notifying the other of the completion of the procedures required by law for bringing the protocol into force. However, the protocol stipulates that its provisions will have effect from the date that dividends tax came into effect in South Africa, namely 1 April 2012.
The protocol amends the articles of the Kuwaiti DTA dealing with the taxation of dividends, interest, capital gains and the exchange of information between the two states.
As set out in our previous article (here), the Kuwaiti DTA currently provides for a dividends tax rate of 0% for Kuwaiti Qualifying Shareholders. As a result of the Most Favoured Nation (MFN) clauses in the DTA between South Africa and Sweden and South Africa and the Netherlands respectively, Swedish and Dutch Qualifying Shareholders can also rely on the 0% dividends tax rate.Â
Once effective, the protocol not only amends the Kuwaiti DTA, but also means that Swedish and Dutch Qualifying Shareholders can no longer rely on the MFN clause to reduce South African dividends tax to zero.
The fact that the amendment is intended to apply retroactively is hugely problematic for South African companies who have relied on the Kuwaiti, Swedish or Dutch DTAs since 1 April 2012 to not withhold dividends tax from dividends declared to Qualifying Shareholders.
Non-retroactivity of treaties is well-established in international law. The retroactive application of the protocol goes against the international interpretation of treaties.
It is not yet clear whether the South African Revenue Service will attempt to recover dividends tax on a retroactive basis. Doing so is likely to give rise to court challenges.
