Tax treaty likely to benefit SA as investment hub into DRC
Democratic Republic of Congo seeking to reduce the cost of doing business
ATAX treaty entered into between the Democratic Republic of Congo (DRC) and SA is likely to promote SA as a hub for inward investment into the DRC. The tax treaty will provide multinational companies with alternative investment opportunities in the DRC.
Until recently, the DRC had entered into only one Double Taxation Agreement (DTA) tax treaty (with Belgium). On July 18 2012, the DRC doubled this number when its DTA with SA came into effect. When a foreign company holds its DRC investment through SA, the treaty and SA’s attractive holding company regime may reduce the tax cost of doing business in the DRC.
The South African government regards the DRC as a strategic partner on the African continent. According to recent statistics issued by the Department of Trade and Industry, two-way trade between SA and the DRC stood at R7.8bn in 2011 compared to R6.2bn in 2010 and R4.8bn in 2009.
The DRC’s domestic laws provide that dividends paid by resident companies to non-resident companies are subject to a 20% withholding tax (10% for mining companies). However, the treaty with SA will reduce the rate to 5% if the South African resident company holds at least 25% of the DRC company. In all other cases, the rate is reduced to 15%.
Dividends include income from shares, mining shares, founders’ shares or other rights, as well as income from other corporate rights which is subject to the same taxation treatment as income from shares by the laws of the state of which the company making the distribution is a resident.
Interest arising in the DRC is subject to a 20% withholding tax rate (0% in the mining industry under certain conditions). If the beneficial owner of the interest is a South African resident, the treaty reduces this rate to 10%. Interest includes income from debtclaims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits.
Royalties arising in the DRC are subject to a withholding tax at an effective rate of 14%. However, if the beneficial owner of the royalties is a South African resident, the treaty reduces this rate to 10%. Royalties include payments received for the use of any copyright of literacy, artistic or scientific work including films, tapes or discs used for radio or television broadcasting, any patent, trademark, design or model, plan, or for the use of industrial, commercial, or scientific equipment.
The DRC-SA Double Tax Treaty provides that income derived by an individual who is a resident of South Africa shall be taxable only in South Africa unless he has a fixed base regularly available to him in the DRC for
Royalties arising in the DRC are subject to a withholding tax at an effective rate of 14%. However, if the beneficial owner of the royalties is a South African resident, the treaty reduces this rate to 10%
reduced withholding tax rates without being subject to an additional layer of tax in SA (if the South African holding company qualifies as a “headquarter company”, there should be no additional layer of tax on dividends, interest and in future royalties), multinational companies with existing and planned investments in the DRC may wish to consider the potential benefits of holding their investments through SA.
The treaty applies to amounts paid on or after January 1 2013 and with respect to tax years beginning on or after January 1 2013.
A STRATEGIC PARTNER
Until recently, the Democratic Republic of Congo had entered into only one Double Taxation Agreement tax treaty (with Belgium)
The South African government regards the DRC as a strategic partner on the African continent. Two-way trade between South Africa and the DRC stood at R7.8bn in 2011