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Secondary Tax on Companies (STC)
Who pays Secondary Tax on Companies (STC)?
STC is a tax on dividends declared by companies that are resident in South Africa. It is imposed on companies or close corporations and not on shareholders. STC was introduced in 1993 to encourage the reinvestment of profits and is governed by Sections 64B and 64C read with the definition of "dividend" in section 1 of the Income Tax Act 58 of 1962.
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On what amount is STC payable?
STC is payable on the net amount, which is:
The dividend declared less the sum of dividends received or accrued during the dividend cycle.
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What are the rates?
Table – Rates of STC for dividends declared during specified periods
.
|
From |
Until |
Rate |
| 17 March 1993 |
21 June 1994 |
15% |
| 22 June 1994 |
13 March 1996 |
25% |
| 14 March 1996 |
30 September 2007 |
12,5% |
| 1 October 2007 |
To date |
10% |
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What is a “dividend cycle”?
A dividend cycle is the time between dividend declaration dates. The first dividend cycle of a company begins on the later of
• 1 September 1992,
• If a dividend was declared between 1 September 1992 and 17 March 1993, on the day following that date of declaration,
• on the date on which the company was incorporated, and
• the date on which the company became a resident.
Subsequent dividend cycles begin immediately after the previous cycle has ended.
A dividend cycle ends on the date on which a dividend accrues to a shareholder.
What is the declaration date of a dividend?
The date of declaration of a dividend, whether in cash or otherwise, is the date of payment by a company or close corporation or the date of the prior approval of the declaration by the directors or members.
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When is STC payable?
STC is payable on or before the last day of the month following the month in which the dividend cycle ends.
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What happens if my payment is late?
The same rules that apply for income tax purposes in relation to the imposition of additional tax in the event of default or omission and the charging of interest apply for STC purposes. Additional tax of up to 200% of the STC payable may be imposed, while interest is charged at the “prescribed rate”. As at 1 March 2008 this was 14%.
What happens to foreign dividends received by a SA parent company?
The STC provisions deal with so-called "loop structures". This is where dividends flow from a South African company (lower-tier South African company) via foreign intermediary shareholder companies to a South African parent. An STC credit can be obtained on foreign dividends received by a South African parent company from a foreign company if they were declared out of profits that have been taxed in South Africa (without any reduction as a result of the application of any double tax treaty). The STC credit applies when the South African parent company indirectly holds at least 10% of the equity share capital of the lower-tier South African company and no other resident holds an equal or greater interest in that lower-tier South African company.
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My company is in liquidation. Do I still pay STC?
Dividends declared in anticipation or during the course of the winding up, liquidation, deregistration or final termination of a company’s corporate existence are exempt from STC if declared out of the following types of profits:
On or after 1 January 2009 the above exemptions will fall away.
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Are interest-free loans deemed as dividends?
Yes, in terms of section 64C(2)(g). In order to avoid being classified as a dividend a loan must bear interest at a rate not lower than the “official rate” (the rate used for fringe benefits purposes).
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