After the Double Taxation Agreement (DTA) or tax treaty between the Democratic Republic of Congo (DRC) and Belgium, the DRC had entered into DTA with South Africa which came into effect on the 18 July 2012. In terms of section 108(2) of the Income Tax Act, 1962 (Act No 58 of 1962), read in conjunction with section 231(4) of the Constitution of the Republic of South Africa, 1996 (Act No 108 of 1996), it is hereby notified that the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income set out in the Schedule to this Notice has been entered into with the Government of the Democratic Republic of Congo and has been approved by Parliament in terms of section 231(2) of the Constitution.

We note that this Convention shall apply to taxes on income imposed on behalf of the government of the DRC and South Africa. The existing taxes to which the Convention will apply in the Democratic Republic of Congo are: the tax on rental income; the tax on investment income; the tax on corporate income; the tax on profits of liberal professions; and the tax on employment income. In South Africa, the convention will apply to the normal tax; the secondary tax on companies; and the withholding tax on royalties.

This tax treaty will clearly provide opportunities for businesses in both countries mainly generate more investment into the DRC from South Africa. The statics on trade between the two countries showing an increase of more than 30 percent from 2008 to 2012 which is showing how the DRC becomes one of the main economic partner for South Africa.

The analysis of the treaty showing that dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends; which is a great deal because if a South African resident company holds at least 25% of the DRC company, the dividend rate will not exceed 5% or 15 % of the gross amount of the dividends in all other cases while in the DRC’s legislation the dividends paid by resident companies to non-resident companies are subject to a 20% withholding tax.

The Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resi dent of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest, while the Interest arising in the DRC is subject to a 20% withholding tax, which is double without DTA between DRC and South Africa.

Regarding the royalties, the double taxation treaty states that Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties. We note that the Royalties arising in the DRC are subject to a withholding tax at an effective rate of 14%.
The treaty between South Africa and DRC eliminated the double taxation as follows: where a resident of the Democratic Republic of Congo derives income from a source outside the Democratic Republic of Congo which, in accordance with the provisions of this Convention, may be taxed in South Africa, the Democratic Republic of Congo shall exempt that income from tax. In South Africa, subject to the provisions of the law of South Africa regarding the deduction from tax payable in South Africa of tax payable in any country other than South Africa (which shall not affect the general principle hereof), Congolese tax paid by residents of South Africa in respect of income taxable in the Democratic Republic of Congo, in accordance with the provisions of this Convention, shall be deducted from the taxes due according to South African fiscal law. Such deduction shall not, however, exceed an amount which bears to the total South African tax payable the same ratio as the income concerned bears to the total income.

The treaty applies to amounts paid on or after 1 January 2013 and with respect to tax years beginning on or after 1 January 2013. South African investors or multinationals planning to invest in the DRC through South Africa clearly are the very position to get benefits of this treaty. According to this treaty the business profits of a South African enterprise will be subject to tax in the DRC only if the South African enterprise carries on business in the DRC through a permanent establishment.