Dividends Tax

What’s new?

The following legal changes impacting Dividends Tax as per the SARS BRS 2013 Dividends Tax V1.0.0 came into effect on 26 April 2014:
  • The maximum rate of tax for certain oil and gas profits will reduce from 5% to 0% (as under Secondary Tax on Companies (STC))
  • New rules will apply for listed and unlisted companies as to the date a dividend is deemed to be paid. For listed companies, tax is now triggered by the actual payment only, whereas for unlisted companies the dividends tax is still triggered when the dividend is paid or becomes due and payable (whichever is earlier). For dividends in specie the same rules apply as for unlisted companies.
  • New valuation rules for distributions of assets in specie apply. Where an asset is a financial instrument listed on a recognised stock exchange, the ruling price on the day before the dividend is deemed to be paid will apply. For any other assets the market value of the asset on the day before the dividend is deemed to be paid will apply.
  • Deemed dividends as a result of a debt owing to the company by a connected person are deemed to be dividends in specie and the tax has therefore to be paid by the company and not the beneficial owner.
  • Anti-avoidance provisions covering certain dividend cessions, share borrowing and share re-sales were added.

The following changes apply to the use of Secondary Tax Credits credits:

  • Where an error is made in claiming an STC credit the liability for the shortfall of dividends tax as a result thereof falls on the company and not the beneficial owner.
  • The following dividends do not qualify in calculating the STC credit:
    • Dividends which had to be disregarded in calculating the “net amount” under STC
    • Foreign dividends
  • The carry forward period was reduced from five (5) to three (3) years (i.e. all remaining STC credits expire on 1 April 2015)
  • A dividends tax return will be required with every dividend payment (and no longer only if tax is payable) and/or the receipt of a dividend which was exempt
  • Late rebate claims can now result in refunds
  • In terms of rebates the withholding agent needs to have proof of the foreign taxes paid before it may reduce the amount it withholds.
Due date for 2014 Dividends Tax Legal Changes data submissions

Further to previous communiques regarding trade testing currently in progress, SARS would like to advise that the due date for Dividends Tax Legal Changes data submissions is effective from 1 May 2014.

Trade testing concluded on 12 April 2014 and provides an opportunity to prepare your systems for electronic submissions through one of the following channels:

  • Connect:Direct™: suitable for bulk submissions (more than 50 000 lines of third party data)
  • HTTPS: suitable for submissions up to 50 000 lines

This new data platform was launched on 26 April 2014.

What is Dividends Tax?

Dividends Tax is a tax charged at 15% on shareholders when dividends are paid to them, and, under normal circumstances, is withheld from their dividend payment by a withholding agent (either the company paying the dividend or, where a regulated intermediary is involved, by the latter). A dividend is defined in section 1 of the Act, but in essence is any payment by a company for the benefit of a shareholder in respect of a share in that company (excluding the return of contributed tax capital, i.e. consideration received by a company for the issue of shares). It is triggered by the payment of a dividend by any:
  • South African tax resident company; or
  • Foreign Company whose shares are listed on the JSE.
  • Dividend payments by headquarter companies are not subject to Dividends Tax.
Dividends Tax replaced Secondary Tax on Companies (STC) in order to:
  • align South Africa with the international norm where the recipient of the dividend, not the company paying it, is liable for the tax (South Africa was one of a few countries with a corporate level tax on dividends, such as STC)
  • make South Africa a more attractive destination for international investment by eliminating the perception of a higher corporate tax rate (STC is an extra corporate tax) coupled with lower accounting profits (STC had to be accounted for in the Statement of Comprehensive Income (Income Statement))
Some beneficial owners of dividends are entitled to an exemption or a reduced rate (foreigners) under the Dividends Tax system, whereas dividends received by them under the STC system were taxed in full in the hands of the declaring company.

Who should pay it?

Generally speaking Dividends Tax is payable by the beneficial owner of the dividend, but is withheld from the dividend payment and paid to the SARS by a withholding agent . The person liable for the tax, however, remains ultimately responsible to pay the tax should the withholding agent fails to or withholds the incorrect tax. An exception to this general principle is where a dividend consists of a distribution of an asset in specie, resulting in the liability for the tax falling on the company itself (such as with STC), which means that it may not withhold the tax from the dividend payment.

When should it be paid?

Dividends Tax applies to any dividend declared and paid from 1 April 2012 onwards, and the withholding agent (either the company or the regulated intermediary) should pay the tax withheld to SARS on or before the last day of the month after the month in which the dividend was paid. Dividends Tax payments should be accompanied by a return (DTR01/02). Penalties and interest may be levied for late payments of dividends tax or the late submission of dividends tax returns.

What steps must I take?

As a shareholder (in either a company that is resident in South Africa or in a foreign company whose shares are listed at the JSE) you will become liable for the Dividend Tax when a dividend is paid to you. However, the relevant withholding agent will have to withhold and pay the tax to SARS. The withholding agent should also send you the required declaration and undertaking form(s) for completion if you wish to qualify for any of the exemptions (section 64F) or a reduced rate in terms of a DTA (foreign residents only). The completed form must be sent to the withholding agent before it may exempt the dividend payment or withhold at a reduced rate.

What is the difference between Dividends Tax & Secondary Tax on Companies?

The main difference lies in who is liable for the tax. Dividends Tax is a tax levied on shareholders (beneficial owners of dividends) when they receive dividends, but STC is a tax levied on companies on the declaration of dividends. There will not be overlap between STC and Dividends Tax. If a dividend is declared before 1 April 2012 (irrespective of actual payment date) it will be subject to STC. Only where the dividend is declared and paid on or after 1 April 2012 will it be subject to Dividends Tax