Dividends Tax

What’s new? 
27 January 2015 – Legal changes made to Dividends TaxLimited legal changes have been made to Dividends Tax following the promulgation of the Acts on 20 January 2015. These changes include:
11 December 2014 – Latest Business Requirements Specification (BRS) availableThe updated SARS External BRS – Administration of Dividends Tax is now available.What is Dividends Tax?
Dividends Tax is a tax charged at 15% on shareholders 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 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 the JSE.Dividend payments by headquarter companies are not subject to Dividends Tax.
Dividends Tax replaced STC in order 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 or a reduced rate (foreigners) under the Dividends Tax system, whereas dividends received by them under the STC system were taxed in full in the hands of 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 or withhold the incorrect 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.

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 whose shares are listed at the JSE) you will become liable for the Dividend 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 in terms of 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. 

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, but 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