Article by: Raeesa Haneef

Senior Manager: International Tax


The Double Tax Agreements (DTAs) between South Africa and The Netherlands, and South Africa and Sweden (the Dutch DTA and Swedish DTA respectively), each contains a ‘most favoured nation’ (MFN) clause in respect of dividends tax which allows Dutch and Swedish corporations to receive dividends from a South African company without having to pay dividends withholding tax, subject to certain requirements being met.

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The MFN clause implies that if South Africa has concluded any other tax treaty with a lower dividend withholding tax rate, the lower rate will apply to the SA-Netherlands DTA from the date of entry into force of the DTA with the third country. The protocol to the SA-Netherlands DTA, which incorporated the MFN clause, came into force in 2008.

South Africa currently has one DTA that provides that a zero rate of tax must be imposed by South Africa – the DTA concluded with Kuwait in 2006 – but South Africa also included another MFN clause in the protocol of the DTA it concluded with Sweden. This came into force on 18 March 2012 and crucially the MFN applies irrespective of when the DTA with the third country was concluded.

It was argued that on the basis that the MFN clause in the SA-Sweden DTA applied due to the prior provisions in the SA-Kuwait DTA, the application of the MFN clause in the SA-Netherlands DTA had been triggered. Both courts agreed and held that qualifying dividend payments in relation to the Netherlands and South Africa should be reduced to a tax rate of zero accordingly.

As a result, if qualifying dividend payments were distributed in a multinational group between an entity in the Netherlands and South Africa after 18 March 2012, and withholding tax was paid, the taxpayer might be entitled to a refund of the dividend withholding tax paid.

However, this benefit may now be short-lived as Kuwait and South Africa have signed an amending protocol on 1 April 2021. Once the amending protocol comes into effect, dividends declared by a South African company to a Dutch or Swedish corporation will no longer qualify for the 0% withholding rate but will be subject to dividends tax.

For more information, please contact Raeesa Haneef for a further discussion should you wish to find out if you are or may be affected by the MFN.