New tax regime for com­pa­nies looms

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - OS­MAN MOL­LAGEE

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.

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