09 March 2017 - Dividends Tax - Clarification Document for Dividends Tax – Tax Rate Change
The interpretation notes contained in this document are applicable to the BRS with the title and version “SARS_External BRS_2014_Dividends Tax_v2.0.1-6 with the effective date of 1 March 2015. This document is a summary of the legislative change with reference to the increased Tax Rate for submissions due by end March 2017.
Note: This Clarification Document is effective for submissions due by end March 2017. SARS Testing platform will be updated from 13 March 2017.
What is Dividends Tax?
Dividends Tax is a tax 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 rate of Dividends Tax increased from 15% to 20% for any dividend paid on or after 22 February 2017 (irrespective of declaration date), unless an exemption or 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.