New tax regime for companies looms
DIVIDENDS tax will replace secondary tax on companies (STC) with effect from April 1 this year. The rate of tax will be 10% in respect of dividends distributed by companies that are resident for tax purposes, and dividends distributed by nonresident companies in respect of shares listed on the JSE.
South African-resident companies will no longer have to account for STC in the future, although they may carry forward STC credits that will have to be allocated to their shareholders.
In the case of dividends declared by listed companies, the responsibility for managing the administration of the dividends tax will in most cases fall on the regulated intermediaries — CSDS, brokers, nominees, etc — although there are certain exceptional circumstances where the administration burden remains with the listed company. For unlisted companies the responsibility for accounting for STC will be replaced by administration of dividends tax.
Regulated intermediaries will assume new responsibilities that have not previously affected them. These companies and regulated intermediaries will be required to withhold and pay the appropriate amount of the tax to the South African Revenue Service (SARS). In the discussion that follows, the term “company” may be held to apply equally to regulated intermediaries who will administer the dividend tax exposures of shareholders of listed companies.
As a starting point, the abolition of STC will trigger the termination of a final dividend cycle that ends on March 31 2012 (unless the company actually declares a dividend on March 31 2012). The purpose of this is to compute the value of unutilised STC credits available at that date.
If no actual dividend is declared on March 31 the computation will reflect a dividend declared of zero and will record all dividends received during the final (deemed) dividend cycle, plus unutilised dividend credits from earlier cycles. The STC credits recorded as unutilised will then remain available to alleviate the liability of shareholders to dividends tax for a period of five years.
Without this mechanism there would be a potential double tax on distributions.
It does not appear as if companies will be required to submit a return for STC purposes, as no STC will be payable as a result of the termination of the dividend cycle. However, it would be advisable that companies that may have unutilised STC credits determine the amount of credits that are available to relieve dividends tax at that date without significant delay.