The France-South Africa tax treaty, article by article

The France-South Africa tax treaty was signed in Paris on November 8, 1993. It covers income tax and wealth tax, but not inheritance or gift tax. It caps dividends at 5 or 15. Interest and royalties are taxable only in the beneficiary's country of residence, subject to two conditions. Shares in companies with real estate assets are taxable in the country where the real estate is located above 50% of its value.

This page presents the consolidated text published by the French tax authorities, which incorporates the Multilateral Tax Convention (MLI) and the BOFiP (French Official Tax Bulletin) guidelines. It does not detail South African tax law, which is covered on our page about life in South Africa.

A text from 1993, the MLI since 2023

The convention. Signed in Paris on November 8, 1993, it came into force on November 1, 1995. The administration's commentary does not mention any amendment.

The MLI. It entered into force with respect to France on January 1, 2019. List BOI-ANNX-000511 indicates, for South Africa, an entry into force in France of January 1, 2023, for taxes withheld at source and of July 1, 2023, for other taxes. This list does not give the entry into force date for South Africa. The consolidated text contains, before Article 1, an unnumbered clause entitled "Right to the benefits of the convention" (Article 7 of the MLI): a benefit may be denied if one of the main purposes of an arrangement was to obtain it.

The taxes in question (Article 2). In France, income tax, corporation tax, payroll tax, and wealth tax. In South Africa, the "normal tax" and a tax on non-resident shareholders, the exact wording of which can be found in the text.

Maximum deductions and key rules

Who is a resident? Article 4

If an individual is resident in both States, Article 4, paragraph 2, applies four rules in order. First, their permanent home; then, if they have one in each State, their closest personal and economic ties (center of vital interests). If they do not have a determinable center or home, their habitual residence. If they habitually reside in both States or in neither, their nationality. If they possess both nationalities or neither, the competent authorities shall decide by mutual agreement.

Dividends: 5 % for a 10 % shareholding held for 365 days

Dividends are taxable in the recipient's state of residence. The state of the paying company may also tax them, up to a limit of 5 % of the gross amount if the recipient is a company that directly holds at least 10 % of the paying company's capital throughout a 365-day period including the payment date. In all other cases, the limit is 15 %. Therefore, an individual is subject to the 15 % rate.

A resident of South Africa can obtain a refund of French withholding tax, provided that it has actually been paid. The gross amount of the refunded withholding tax is considered a dividend (Article 10 § 3).

Interest and royalties: no fixed amount, taxable in the resident's country.

Here, the text does not specify a percentage. Interest arising in one State and paid to a resident of the other State "is taxable only in that other State if that resident is the beneficial owner thereof and if such interest is subject to tax in that other State." Article 12 uses the same wording for royalties.

Two conditions therefore apply to the application of the rule: the beneficiary must be the beneficial owner, and the income must be subject to tax in their country of residence. The text also provides an exception for permanent establishments or fixed bases, and another for the portion of payments that exceeds a normal amount between related parties.

Capital gains: the 50 % building test

Capital gains on real estate are taxable where the real estate is situated. Article 13, paragraph 1(b), extends this rule to shares or similar rights, including rights in a partnership or trust: the gain is taxable in the other State if, at any time during the 365 days preceding the transfer, those shares derive, directly or indirectly, more than 50% of their value from real estate situated in that other State. Capital gains on all other property are taxable only in the State of which the transferor is a resident.

Employees: 183 days in the calendar year

Article 15, paragraph 2, exempts the state of employment under three conditions: a stay not exceeding 183 days in total "during the calendar year in question," an employer who is not a resident of that state, and an expense not borne by a permanent establishment or fixed base of the employer. The relevant period is the calendar year, not a period of twelve consecutive months. Self-employment falls under Article 14: the state of residence taxes, unless a fixed base is ordinarily available in the other state.

Pensions and annuities: a clause of subjection

Article 18 classifies pensions and similar remuneration paid in respect of previous employment, as well as annuities, in the state of residence of the recipient. It adds that they "are not taxable in the other Contracting State if they are subject to tax in the first-mentioned State." The rule therefore depends on actual taxation in the state of residence. Article 19 reserves public salaries and pensions, in principle, for the paying State.

Wealth tax: Article 22

The convention also addresses capital. Real estate and shares or rights in companies whose assets consist primarily of real estate are taxable in the state where the property is located. A substantial interest, that is, one that entitles the holder to at least 25% of the company's profits, is taxable in the state of residence of the company. The assets of a permanent establishment or fixed base follow their location. Other elements of capital are taxable only in the state of residence.

This page does not examine the application of these rules to the French real estate wealth tax.

Eliminating double taxation: Article 23

France takes into account South African-source income taxable in South Africa when calculating its tax liability. South African tax is not deductible from this income. The tax credit is of two types (Article 23 § 1 a)). For dividends (Article 10 § 2), capital gains (Article 13 § 1), onboard remuneration (Article 15 § 3), directors' fees (Article 16 § 1), and income of artists and athletes (Article 17 § 1 and 2), it is equal to the South African tax, capped at the corresponding French tax. For other income, it is equal to the corresponding French tax. For wealth taxable in South Africa under Article 22, the credit is equal to the South African tax, capped at the corresponding French tax (Article 23 § 1 c)). South Africa, for its part, deducts the tax paid in France, up to the limit of the corresponding share.

Inheritance and gifts: the convention does not address these.

The administrative register provides information on income tax and wealth tax. Inheritances and gifts are not included, and the consolidated text makes no mention of them.

Other articles and what this page does not cover

Article 24 prohibits discrimination based on nationality and applies to permanent establishments, businesses owned by non-residents, and the deduction of payments to non-residents. Article 26 governs the exchange of confidential information. The text does not include a protocol.

This page does not detail company profits.

Dividends and shares in real estate companies: a numerical example (fictitious profile)

Situation. A French company (fictitious profile) has directly held 15 shares (%) for over 365 days in a South African company that pays it €300,000 in gross dividends (assumptions). A French resident investor also sells shares in a company valued at €10,000,000, of which €6,200,000 is derived from properties located in South Africa.

Issue. The company wants to know the maximum withholding tax in South Africa. The investor wants to know which state can tax their gains.

Strategy. The company applies Article 10 § 2 a). The investor calculates the share of real estate in the value of the securities and compares it to the threshold of 50 % of Article 13 § 1 b).

Result. The withholding tax cannot exceed €15,000 at 5 %, compared to €45,000 at 15 %, a difference of €30,000. The real estate portion is 62 %, above the 50 % threshold: South Africa can tax the gain. With €4,500,000 in real estate, it would be 45 %, and the threshold would not be reached, subject to the value at any time during the preceding 365 days.

This profile is fictitious. The calculations do not take into account South African or French tax laws. No outcome is guaranteed, and South African law should be verified with local legal counsel.