4 November 2008
Details of the new income tax treaty and protocol between South Africa abd Prtugal, signed on 13 November 2006, have become available. The treaty was concluded in the English and Portuguese languages, each text having equal authenticity. When the treaty enters into force, it will repeal the transport tax treaty signed on 2 August 1957. The treaty generally follows the OECD Model Convention.
The maximum rates of withholding tax are:
|-||15% on dividends in general, and 10% if the beneficial owner is a company which, for an uninterrupted period of two years prior to the payment of the dividend, owned directly at least 25% of the capital stock of the company paying the dividends;|
|-||10% on interest;|
|-||10% on royalties; and|
|-||for service fees (managerial and technical), there are no provisions.|
Deviations from the OECD Model include:
|-||profits of an enterprise carried on by a resident of a contracting state from the operation of ships or aircraft in international traffic are taxable only in that state;|
|-||the treaty contains an article on independent personal services based on the UN Model Convention;|
|-||a professor or researcher visiting a contracting state for the purpose of teaching or carrying out research at any non-profit-making accredited institution who is, or immediately before making such visit was, a resident of the other contracting state is exempt from tax in the first-mentioned state on remuneration for such teaching and research received from outside the first-mentioned state for a period not exceeding two years from the date of first arrival in that state;|
|-||the treaty does not contain an article on taxation of capital;|
|-||a contracting state may not subject profits of a permanent establishment in that state to tax at a rate which exceeds the normal tax rate by 5%. This proviso will only apply while the exemption from Secondary Tax on Companies currently afforded to branches of companies which are not resident in South Africa is in effect; and|
|-||the treaty does not contain an article on assistance in the collection of taxes.|
Both states generally provide for the credit method to avoid double taxation.
The treaty and protocol make no specific reference to special tax regimes in either South Africa or Portugal, and it is assumed that they apply to entities qualifying for any such regimes.
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