Double Taxation Agreement Between South Africa and Mozambique: What You Need to Know
Double taxation is a common issue that arises when individuals or companies earn income in one country and then have to pay taxes on that income in both their home country and the country where the income was earned. To prevent this, countries often sign Double Taxation Agreements (DTAs) to ensure that individuals and companies are not taxed twice on the same income. In this article, we will take a closer look at the double taxation agreement between South Africa and Mozambique.
South Africa and Mozambique signed their first DTA in 1999, which came into effect on 1 January 2002. The agreement was designed to promote cross-border trade and investment between the two countries by eliminating double taxation and reducing the tax barriers that can hinder economic development.
In 2013, the two countries signed an updated agreement that incorporated changes made to the OECD Model Tax Convention. The revised agreement was ratified in 2016 and became effective on 1 January 2017.
Key Provisions of the DTA
The South Africa-Mozambique DTA covers the following taxes:
– In South Africa: normal tax, including any amount of additional tax chargeable, and the tax on capital gains;
– In Mozambique: Imposto sobre o Rendimento das Pessoas Colectivas (IRPC), Imposto sobre o Rendimento das Pessoas Singulares (IRPS) and Imposto sobre o Valor Acrescentado (IVA).
The agreement contains several key provisions that prevent double taxation:
1. Taxation of Business Profits: A company that operates in both South Africa and Mozambique will be taxed in only one country on its business profits. The country where the company is resident will have the primary right to tax the profits, while the other country will have the right to tax the profits but only to the extent that they are attributable to a permanent establishment in that country.
2. Elimination of Double Taxation on Dividends: Dividends paid by a South African company to a Mozambican resident will be subject to a maximum withholding tax rate of 5%. Similarly, dividends paid by a Mozambican company to a South African resident will be subject to a maximum withholding tax rate of 10%. This helps to avoid double taxation that would otherwise occur on dividends paid to residents of both countries.
3. Relief for Double Taxation on Capital Gains: Capital gains derived by a South African resident from the disposal of assets situated in Mozambique will be taxed in Mozambique. However, South Africa will provide relief for the tax paid in Mozambique by allowing a credit against its own tax payable on the same gains. Similarly, capital gains derived by a Mozambican resident from the disposal of assets situated in South Africa will be taxed in South Africa. However, Mozambique will provide relief for the tax paid in South Africa by allowing a credit against its own tax payable on the same gains.
The Double Taxation Agreement between South Africa and Mozambique provides a framework for the two countries to promote cross-border trade and investment by eliminating double taxation and reducing tax barriers. By doing so, the agreement helps to facilitate economic development in both countries and ensure that individuals and companies are not taxed twice on the same income. As such, it is an important agreement that benefits both South African and Mozambican residents who engage in cross-border transactions.