DIVIDENDS TAX: THE BASICS
Dividends tax replaced Secondary Tax on Companies ("STC ") with effect from 1 April 2012. In the Budget Speech of 22 February 2012, the rate of DT was increased to 15%. Further changes to the dividends tax legislation were also announced in the draft Taxation Laws Amendment Bill which was released on 13 March 2012.
In practice although dividends tax is imposed on the shareholder, it must generally be withheld by the company paying the dividend - the company then pays the net amount to the shareholder and pays the dividend tax to SARS.
Dividend tax is levied at a rate of 15% of the amount of any dividend or foreign dividend paid or payable (whichever is the earlier) by -
South African companies or
non-resident companies in respect of foreign shares listed on the JSE.
Where distributions in specie are made, special rules govern the withholding obligation.
The persons liable for dividends tax are:
the beneficial owner of a dividend, to the extent that the dividend does not consist of a distribution of an asset in specie;
a resident company which declares and pays a dividend, to the extent that the dividend consists of a distribution of an asset in specie.
A "beneficial owner" is the person entitled to the benefit of the dividend attaching to a share. A nominee or an agent holding shares on behalf of another person, will not be a beneficial owner.
Date of liability
The timing rules will be adjusted when the provisions of the Taxation Laws Amendment Bill 2012, becomes law. For unlisted companies, the liability for DT is triggered on the earlier of the date on which the dividend is paid or becomes payableby the company which declared the dividend. The timing trigger for listed companies will be the date of payment, if the Taxation Laws Amendment Bill becomes law.
Obligation to withhold
Although Dividends Tax is imposed on the beneficial owner, the obligation to withholddividends tax (subject to certain exemptions) is imposed on:
any resident company that declares and pays a dividend;
any regulated intermediary paying dividends that were declared by any other person1 ; and
If the person responsible for withholding dividends tax fails to withhold / pay over to SARS he could incur personal liability for the dividends tax.
The company paying the dividend has no obligation to withhold dividends tax in the following cases:
Where the recipient of the dividend has submitted a declaration from the beneficial owner that the dividend is exempt from the dividends tax in terms of the legislation, by a date determined by the company or by the date of payment of the dividend as well as a written undertaking to inform the company in writing if the person ceases to be the beneficial owner.
If the beneficial owner forms part of the same group of companies as the payor company;
If the dividend is paid to a "regulated intermediary".
The exemptions for companies in the same group of companies, or regulated intermediaries, do not require the submission of an exemption declaration and these exemptions apply automatically.
The rate of dividends tax can be reduced if the beneficial owner has submitted a declaration to the company, that a reduced rate applies in terms of a double taxation treaty ("DTA").
As stated, if the dividends are paid to a regulated intermediary, the company paying the dividend does not have any obligation to withhold dividends tax, because the "regulated intermediary" has an obligation to withhold dividends tax when it pays the dividend to the beneficial owner. Regulated intermediaries include central securities depositary participants (CSDP) authorised users as defined in the Securities Services Act (SSA), 36 of 2004; nominees approved by the Registrar in terms of the SSA; other approved nominees; collective investment schemes in securities; or approved corporate transfer secretaries.
Dividends Tax: Exemptions
A dividend (if it is not a distribution in specie) is exempt from dividends tax where the beneficial owner is:
a resident (South African) company;
the Government, a provincial administration or a municipality;
an approved public benefit organisation;
a trust contemplated in section 37A (closure rehabilitation trust);
certain exempt institutions;
pension and benefit funds;
certain Government agencies;
a shareholder in certain registered micro businesses
non- residents who receive foreign dividends paid by non-resident companies, on JSE listed shares and the foreign dividend does not consist of a distribution of an asset in specie.
These exemptions above are "conditional" and only operate where the company distributing the dividend or relevant withholding agent receives the required notifications ("declarations" and "undertakings" in the form to be prescribed by SARS) from the recipient prior to payment of the dividend.
Distributions in specie
Where dividends in specie are paid, the company is liable for the dividends tax and the market value of the asset is regarded as the amount of the dividend. Non-resident companies listed on the JSE which distribute assets in specie are not liable for dividends tax. Certain general exemptions apply to dividends in specie.
Certain loans to connected persons who are not companies and who are residents are deemed to be dividends and will be subject to dividends tax.
Dividends Tax -STC credits
Dividends will not be subject to dividends tax if the dividend does not exceed the STC credit of the company; and the company has complied with certain administrative notification requirements.
STC credits have to be used up in a three year period.
Dividends tax - Payment & recovery
Payments of dividends tax must be made by the last day of the month following the month during which the dividend is paid by the company that declared the dividend and must be accompanied by a return.
If you are a shareholder of director of an unlisted company that is obliged to withhold dividends tax and you control or are regularly involved in the management of the overall financial affairs of the company, failure to withhold and pay the tax over to SARS could cause personal liability in respect of the dividends tax, additional tax, penalties or interest, for you.
Refunds & recovery3
Where the beneficial owner has not submitted declarations (for reduced rates or exemptions) in time, but he does so within three years from the date of payment of the dividend, the company can refund the dividends tax from any amount of dividends tax withheld by:
The company within one year after the submission of the declaration; or
The intermediary after the submission of the declaration.
If future withholdings are insufficient, a company may recover the excess from SARS, if the claim for recovery is submitted within four years from the date of the payment. No such right of recovery for intermediaries. No direct refund claims by taxpayers are allowed.
The legislation is new, and undoubtedly practical issues will arise. We will keep you updated about these issues.
The obligations regarding the submission of documentation, in respect of the dividends tax, are onerous - these will be dealt with in a separate article.