by Bilal Jhetam on 21/08/12 at 6:37 am
The new Dividends Tax replaced The Secondary Tax on Companies (STC) with effect from 1 April 2012.
Dividend Tax is a tax on shareholders when they receive dividend distributions from companies and it applies to any dividend declared and paid on or after 1 April 2012.
Dividend Tax is categorized as a withholding tax as the tax should be withheld and paid over to SARS by the company that is distributing the dividend to the shareholders.
The main difference between Dividend Tax and STC lies in who is liable for the tax. Dividend Tax is a tax imposed on the shareholder on receipt of the dividends, whereas STC is a tax imposed on companies on the declaration of dividends.
The main objectives behind the change to Dividend Tax were:
- To align the level of taxation of dividends in South Africa with the international norm where the recipient of the dividend, not the company paying it, is liable for the tax relating to the dividend
- To make South Africa a more attractive international investment destination by eliminating the perception of higher corporate tax rate (STC is an additional corporate tax).
Dividend Tax is triggered by the payment of dividends by a South African tax resident company; or a foreign company that is paying dividends in respect of shares listed on the JSE.
If a company provides a low or no interest loan to a person that holds shares in that company, the interest benefit so provided is deemed to be a dividend and will consequently be subject to Dividend Tax.
Dividend Tax is levied at a rate of 15% of the amount of any dividend paid by a local company.
Certain dividend payments could be exempt from Dividend Tax depending on the nature or status of the recipient. The exemptions are “elective” in the sense that it will only apply where the company distributing the dividend or relevant withholding agent receives the required notifications from the recipient prior to payment of the dividend.
Dividends payable to the following beneficial shareholders could be exempt from Dividend Tax:
- South African resident companies
- The Government
- Public Benefit Organisations (approved ito The Income Tax Act)
- Mining rehabilitation trusts (section 37A of The Income Tax Act)
- Any institution that conducts specific research; or provides necessary commodities or services to the state; or carries on activities designed to promote commerce, industry or agriculture (see Section 10(1)(cA) of The Income Tax Act)
- Certain funds as specified in The Income Tax Act (e.g. pension fund, provident fund or medical scheme)
- Section 10(1)(t) persons (e.g. CSIR and SANRAL)
- Shareholders in a registered micro business (6th Schedule) insofar as the dividend is less than R200,000 per year
- Non-resident and the dividend is received from a foreign company listed on the JSE
Companies with unused STC credits will be able to reduce Dividend Tax payable by shareholders on dividends received during a transitional period of five years.
Any unused STC credits will expire five years after 01 April 2012.
*Dividend Tax is also applicable on dividend distributions made by Close Corporations.
Bilal is CA (SA) and a partner at NexiaSAB&T. He has been with Nexia SAB&T for 10 years in total. He has also been a director at Business innovation Group which is a subsidiary of Simeka Business Group Ltd. Bilal is responsible for the Southern Region Consulting and Internal Audit division at Nexia SAB&T. He has experience from a broad client base ranging from listed companies to public sector entities. He sits on the board and audit committee of a number of companies and NPO’s such as the Cape Chamber of Commerce. Besides the governance environment Bilal’s other focus is Due Diligence investigations and Business valuations. He also sits on the Nexia International – valuations committee. Contact Bilal on firstname.lastname@example.org or visit Nexia SAB&T's website at www.nexia-sabt.co.za View more articles by Bilal Jhetam.
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