Dividends Tax

What's new? 

  • 9 January 2016 - Submission of Third Party Data: Trade testing for Returns on Investment and Interest Income to start soon

    We would like to invite you to participate in the trade testing for the submission of information relating to Third Party Data submissions.

    Testing will start on 22 February 2016 and includes the submission of the IT3 Third Party Data products, Tax Free Investments (IT3(s)), Withholding Tax on Interest (included in IT3(b)), and Dividends Withholding Tax.

    Following the various legal changes which came into effect on 1 March 2015, a number of changes were made to the IT3 (b, c, e & s) Business Requirements Specification (BRS). Please visit the SARS website for more information about the changes and to access the updated BRS for IT3 Data Submission which includes IT3(b), IT3(c), IT3(e) and IT3(s) and the BRS for Dividends Tax

    By participating in the trade testing you will assist us in ensuring the process of gathering and submitting information to SARS runs smoothly from start to end before the implementation of the changes on 15 April 2016.

    Should you experience any challenges while doing trade testing, you are welcome to contact us on email Bus_Sys_CDSupport@sars.gov.za.

    Please note that Filing Season for both third party data and employee data is set to open on 15 April 2016 requiring financial institutions to submit their returns for period 1 March 2015 to 28 February 2016 to SARS.

    The closing date for submissions is 31 May 2016 and we request that you ensure that you submit on time to avoid penalties for non-submissions of returns.

  • 9 February 2016 - South African Double Taxation Agreements (DTA)
    The DTA tables for Dividends Tax for 1) Africa and 2) the Rest of the world were updated because of renegotiations and new treaties entering into force.
     
  • 4 November 2015 - Further allowance in respect of the administration of Real Estate Investment Trust (REIT) dividends 

    The administration and reporting to SARS for dividends tax purposes by withholding agents in respect of REIT dividends continues to be problematic, despite previous allowances made by SARS in this regard.

    Under the current arrangement the withholding agent may only exempt a REIT dividend paid to a resident of South Africa where that resident completed the DTD(EX) declaration form prescribed by the Commissioner (See Appendix G – Beneficial Owner Declarations of Status on pg 71 of the SARS External BRS - Administration of Dividends Tax (2015 version 2.0.1) for the data requirements of the DTD(EX) form.

    In light of the difficulties experienced by withholding agents, SARS will allow a withholding agent to accept any formal declaration made to it by the beneficial owner as to its residency, to serve as a declaration in the form prescribed by the Commissioner for purposes of exempting the REIT dividend. However, where the withholding agent chooses to not use the DTD(EX) form as originally prescribed the withholding agent assumes the risks involved in doing so.

    This relaxation relates only to historic transactions and may not be used for any transactions going forward.

  • 22 June 2015 - Latest Business Requirements Specification (BRS) available

    The updated SARS External BRS - Administration of Dividends Tax (2015 version 2.0.1) is now available.
    This BRS includes the:
    • Legal changes made to Dividends Tax
    • New exemption codes I and O in Appendix C
    • Logic Validation of Field 65 (Exemption Claimed).

Note: Development, testing and implementation must be completed by end November 2015.  Trade Testing with SARS will commence in the second week of January 2016 for one month only.

What is Dividends Tax?

Dividends Tax is a tax charged at 15% on shareholders (beneficial owners) 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 in essence any payment by a company to a shareholder for a share held 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 a South African Exchange.
Dividend payments by headquarter companies are not subject to Dividends Tax.
Dividends Tax replaced STC in an effort 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 only 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 (local and/or foreign persons) or a reduced rate (foreign persons) under the Dividends Tax system, whereas dividends received by them under the STC system were taxed in full in the company declaring the dividend. 

Who should pay it?

Dividends Tax is payable by the beneficial owner of the dividend, but is withheld from the dividend payment and paid to SARS by a withholding agent. The person liable for the tax, however, remains ultimately responsible to pay the tax should the withholding agent fail to withhold the correct amount of 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. 

How much will be paid?

The current rate of Dividends Tax is 15% unless an exemption or a reduced rate is applicable.
 
A summary of the withholding tax rates as per the South African Double Taxation Agreements currently in force has been split into two parts, as follows:

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 following 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 the shares of which are listed at a South African Exchange) you will become liable for the Dividends 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 or a reduced rate under 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.  
 
Top tip: Many withholding agents have incorporated these declaration forms into their account-opening process, so there is no need to do so at a later stage. Should any material aspect of such a declaration change, it is incumbent on the beneficial owner to advise the withholding agent accordingly. 

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

The main difference lies in who is liable for the tax. Dividends Tax is a tax levied on shareholders when they receive dividends, where as STC was a tax levied on companies on the declaration of dividends. There is no overlap between STC and Dividends Tax. If a dividend was declared before 1 April 2012 (irrespective of actual payment date) it was subject to STC. Only where the dividend is declared and paid on or after 1 April 2012 will it be subject to Dividends Tax.
 

 

Last Updated: 10/01/2017 10:14 AM     print this page
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 Top FAQs

Are there any exemptions applicable to Dividends Tax?
Dividends payable to the following beneficial owners could be exempt from Dividends Tax (provided the required “declaration” and “undertaking” are submitted to the company or withholding agent in time):

Who is liable to pay Dividends Tax to SARS?
Generally speaking the Dividends Tax is a withholding tax. As such the tax is withheld from dividend payments and paid to the SARS by the company paying the dividend or,

I am an individual and I receive dividends, must I submit Dividends Tax information to SARS?
Individuals receiving dividend payments are not responsible for submitting any information to SARS. The company or regulated intermediary paying the dividend administers this aspect.

I am currently not registered for Income Tax (eg. I am a low income earner who earns income under the tax threshold and acquired some shares as a result of, for example, a BBBEE deal). Would I need to now register as a result of Dividends Tax?
No, if you are not required by law to register for income tax purposes you will not be required to do so merely as a result of the

Who is liable for the Dividends Tax?
The beneficial owner of the dividend is liable for the Dividends Tax - normally this would be the shareholder. However, if the particular dividend consists of a distribution.