What is Dividends Tax?

What is Dividends Tax?

Dividends Tax is a levy on shareholders when they receive dividends from their investments. This tax is typically withheld by a withholding agent, such as the company paying the dividend or a regulated intermediary. Here’s a concise overview to help you navigate this tax:

Dividends Tax is applied to payments made by companies to their shareholders, except for returns of contributed tax capital. It comes into play when a South African tax resident company or a foreign company listed on a South African Exchange pays dividends. Headquarter companies are exempt from this tax.

Why was Dividends Tax introduced?

Dividends Tax replaced the Secondary Tax on Companies (STC) to:

  • Align South Africa with international norms by taxing the recipient of the dividend instead of the company.
  • Enhance South Africa’s appeal to international investors by eliminating the perception of a higher corporate tax rate and lower accounting profits.

Who pays Dividends Tax?

While the tax is ultimately the shareholder’s responsibility, it is typically withheld and paid to SARS (South African Revenue Service) by the withholding agent. If a dividend is distributed as an asset in specie, the company pays the tax.

What are the rates?

As of 22 February 2017, the Dividends Tax rate is 20%, up from 15%. Some shareholders may be eligible for exemptions or reduced rates under Double Taxation Agreements (DTAs).

When is Dividends Tax paid?

The tax applies to dividends declared and paid from 1 April 2012 onwards. The withholding agent must pay the withheld tax to SARS by the last day of the month following the month in which the dividend was paid. Late payments or submissions may incur penalties and interest.

Steps for Shareholders

  • When you receive a dividend, the withholding agent will deduct the Dividends Tax and pay it to SARS.
  • If you qualify for exemptions or reduced rates, complete the necessary declaration and undertaking forms provided by the withholding agent.
  • Keep your details updated with the withholding agent to ensure your tax status is correctly applied.

Reporting Requirements

Previously, both dividend payments and receipts had to be reported to SARS. However, since 17 January 2019, only the payment side needs to be reported.

Dividends Tax vs. STC

The key difference is the liable party. Dividends Tax is levied on shareholders upon receipt of dividends, while STC was a corporate tax on the declaration of dividends. Dividends declared before 1 April 2012 were subject to STC, whereas those declared and paid after are subject to Dividends Tax.

By understanding these basics, shareholders can better manage their investments and tax obligations related to dividends. For more information or assistance, feel free to contact PRNC.

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