SA’s bid to amend tax treaties with Eswatini
MBABANE – Reports suggest South Africa is looking at amending tax treaties with three countries that include Eswatini.
This is being done to boost the exchange of information between tax authorities and clamp down on tax evasion.
News24 reported that the neighbouring country’s National Treasury and the South African Revenue Services (SARS), recently held preliminary hearings with the Standing Committee on Finance about proposed amendments to tax treaties with Eswatini, Germany and Switzerland.
A tax treaty is said to be a bilateral (two-party) agreement made by two countries to resolve issues involving double taxation of passive and active income of each of their respective citizens. Income tax treaties generally determine the amount of tax that a country can apply to a taxpayer’s income, capital, estate, or wealth.
They further provide certainty on when and how tax is to be imposed in a country, though they do not impose taxes, like domestic tax legislation.
Treaties further help with tax collection between the tax authorities of two countries, as well as resolving tax disputes or interpretations by tax authorities.
Notably, they help mitigate against tax evasion and avoidance, and allow for the exchange of information on tax matters.
Amendments
“South Africa’s treaty with Eswatini (previously Swaziland) came into force in 2005. The amendments account for Eswatini’s name and takes into account changes in international standards regarding the exchange of information. Namely ,the amendment ensures bank secrecy or a lack of domestic tax interest is no longer relied upon to refuse a request for exchange of information,” reads the report.
Explaining how a tax treaty works, experts say when an individual or business invests in a foreign country, the issue of which country should tax the investor’s earnings may arise. Both countries–the source and the residence country may enter into a tax treaty to agree on which country should tax the investment income to prevent the same income from getting taxed twice.
The source country is the country that hosts the inward investment. The source country is also sometimes referred to as the capital-importing country.
Residence
The resident country is the investor’s country of residence. The residence country is also sometimes referred to as the capital-exporting country.
An income tax treaty is also called a double tax agreement. Some countries are seen as being tax havens. Generally, a tax haven is a country or a place with low or no corporate taxes that allow foreign investors to set up businesses there. Tax havens typically do not enter into tax treaties.
Setsabile Dlamini, Communications Officer in the Ministry of Finance, said Eswatini was yet to receive a formal communication with from South Africa on the issue.
“We look forward to receiving a formal notification for the proposal to re-negotiate,” she said.