The new double taxation agreement between South Africa and Rwanda ("DTA") became effective on 3 August 2010 and affects normal tax for financial years commencing after that date.
Its provisions include:
- dividends are subject to a maximum withholding tax of 10 % if the beneficial owner is a company which holds at least 25% of the company paying the dividends. In all other cases the withholding tax will be a maximum of 15%;
It should be noted that upon the shareholders dividend withholding tax coming into effect in 2011 (replacing Secondary Tax on Companies), the Rwandan shareholder receiving dividends from South Africa will obtain no relief since the DTA does not reduce the proposed 10% rate.
- interest payments are subject to a maximum 10% withholding tax;
- gross royalties are subject to a 10% withholding tax;
- technical fees are subject to a 10% withholding tax.
The term technical fees means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any service of a technical, managerial or consultancy nature, unless the payment is limited to the reimbursement of actual expenses incurred by that person with respect to the service.
- a 'permanent establishment' includes the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the 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 aggregating more than six months within any twelve-month period commencing or ending in the fiscal year concerned;
- a 'permanent establishment' also includes the performance of professional services or other activities of an independent character by an individual, but only where those services or activities continue within the contracting state for a period or periods aggregating more than six months within any twelve-month period commencing or ending in the fiscal year concerned;
- a 'permanent establishment' also includes 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 six months;
- Rwanda and South Africa operate a credit system in terms of the DTA, in which the country of which a taxpayer is a resident, will give credit against its home country tax liability (if any), for tax payable in the other country.