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. It is triggered by the payment of a dividend by any:
Dividend payments by headquarter companies are not subject to Dividends Tax.
Dividends Tax replaced STC (secondary tax on companies) in an effort to:
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.
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, which means that it may not withhold the tax from the dividend payment.
The rate of Dividends Tax increased from 15% to 20% for any dividend paid on or after 22 February 2017. This is irrespective of the 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:
Dividends Tax applies to any dividend declared and paid from 1st 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. Penalties and interest may be levied for late payments of dividends tax or the late submission of dividends tax returns.
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 forms 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.
In most cases these declaration forms are built into the agents account opening process so there should be no need to fill these out at a later date. It is incumbent on the beneficial owner to advise the withholding agent accordingly should any material aspect of such a declaration change
The biggest 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.
So, in short, Dividends Tax is a tax imposed on shareholders at a rate of 15% on receipt of dividends, whereas STC is a tax imposed on companies (at a rate of 10%) on the declaration of dividends. The Dividends Tax is a withholding tax as it should be withheld and paid to SARS by the company paying the dividend or by a regulated intermediary and not the person liable for the tax.
| Secondary Tax on Companies | Dividends Tax | |
| Underlying theory | Movement of an amount representing a pro t/reserve to a shareholder outside company / group should attract tax | Payments/distributions (less CTC) to beneficial owners should attract tax |
| Trigger | Declaration or Deemed declaration | Listed shares: actual payment Unlisted shares: actual payment or date due and payable (whichever is first) Dividends in specie: actual payment or date due and payable (whichever is first) Debt owing to company during year (low / no interest): last day of the year of assessment |
| Liability for tax | Company | Beneficial owner: Normal/cash Company: In specie dividends (including deemed debt dividends) |
| Counter parties | Company vs. Shareholder | Company vs. Beneficial owner (with the Withholder interposed) |
| Withholding / Payment to SARS | Company | Company Regulated intermediary |