July 19, 2012
With effect from 1 April 2012, Secondary Tax on Companies (STC) will be replaced with a dividends tax to be levied at shareholder level, except in respect of dividends in specie which would remain the liability of the company.
The main reason given by South African Revenue Service (SARS) for the change is that STC created the impression that South Africa's corporate tax rate was higher than that of other emerging markets, thereby disincentivising inbound foreign investment.
Furthermore, the introduction of DT aligns South Africa with international standards and best practice where the recipient of the dividend is liable to the tax and not the company paying it.
Broadly, DT is a tax imposed on shareholders or rather beneficial owners at a rate of 10% on dividends paid by the company. STC, on the other hand, is a tax imposed on companies (at a rate of 10%) on the declaration of dividends.
DT is categorised as a withholding tax, as, with exception for dividends in specie, collection of the tax is withheld and paid to SARS by the company paying the dividend or by a regulated intermediary.
The following beneficial owners are exempt from DT:
- A South African resident company
- The Government
- Public benefit organisations
- An institution, board or body that conducts research, provides services to the State or general public, or promotes commerce, industry or agriculture
- A closure rehabilitation trust
- Pension, provident and similar funds
- A parastatal
- A shareholder in a registered micro business, to the extent that the aggregate amount of the dividends paid by that registered micro business to its shareholders during the year of assessment in which that dividend is paid does not exceed the amount of R200,000
- A natural person upon receipt of an interest in a primary residence.
- A non-resident receiving a dividend from a non-resident company which is listed on the JSE.
The same exemptions apply to dividends in specie.
More information on these developments can be provided by Eugene du Plessis, PKF Johannesburg, through the EisnerAmper contacts listed at the end of this Newsletter.