[Question] Withholding Tax - Zambia and South Africa - advice needed

[Kevin Smith]

Hi All

We recently did some work (IT consulting) for a Zambian client. (We are based in South Africa). When they paid us, they withheld 20% of the payment. They said it is withholding tax, and have provided us with a certificate from Zambian Revenue services, to show they paid it over.

Please can someone explain the accounting process, and if this just has to be expensed our side, or if there is a possibility of claiming the amount back against taxes paid? (And if so, what is the process?). Google tells me that the 6quin relief has fallen away in 2016, and now it can only be a 6quat deduction, which basically means we take the knock as a tax deductible expense, but can't claim it as a rebate against taxation paid. Is this correct?

The client keeps telling me I can claim it back against tax as a rebate, but can't tell me how to go about it in SA. It is my fault for not researching the implications for doing business into Africa correctly, but taking a 20% knock on all work done for WHT doesn't make the work profitable. I would hate to pull the plug or the project, but working for a loss makes poor business practice.

Any advice would be appreciated.

Thanks

[Andromeda]

Hi Kevin

SARS will entertain the claim in terms of 6quat(1). When services are provided outside of South Africa to a foreign entity Section 6quat(1) will apply and a rebate may be claimed for the foreign tax or withheld, directly from Income Tax payable, thereby creating a more substantial tax benefit than Section 6quat(1C).

[Kevin Smith]

Thanks Andromeda

Just to clarify, we did the work in South Africa for the Zambian client. Correct me where I am mis-reading the legal stuff if you can please, to put my mind at ease.
If it were trading income, we would be entitled to a rebate under 6quat(1). Zambia Revenue determines "IT services" to be "Management Consultancy Fees" which from what i can tell only entitles us to a deduction under 6quat(1c)(a)?

[Andromeda]

As there is a DTA with Zambia, I assume that the rebate applies, 6quat(1)

Also see https://www.saica.co.za/integritax/2...eign_taxes.htm

And https://taxfaculty.ac.za/news/read/i...rce%20amounts.


I truly am not sure whether in your case it was provided here or there, but here is a plain English interpretation. https://www.rsm.global/southafrica/n...income-tax-act

Feedback from SARS 6Quat.pdf

[Kevin Smith]

Awesome - thanks. The plain English version makes it clear - source is local, so tax withheld reflects as expense, not a rebate. Will have to increase their pricing to offset the WHT.