Div­i­dends tax puts onus on com­pa­nies

Although the tax gen­er­ally is im­posed on the share­holder, it is with­held by the com­pany pay­ing the div­i­dend, which pays it over

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - BET­SIE STRYDOM

DIV­I­DENDS tax re­placed Sec­ondary Tax on Com­pa­nies (STC) with ef­fect from April 1 2012. STC was a “sec­ond-tier” cor­po­rate tax levied on the com­pany, whereas div­i­dends tax is levied on the share­holder.

A with­hold­ing tax mech­a­nism in most cir­cum­stances re­quires the com­pany pay­ing the div­i­dend to with­hold and pay the div­i­dends tax. In prac­tice, there­fore, although div­i­dends tax is gen­er­ally im­posed on the share­holder, it must be with­held by the com­pany pay­ing the div­i­dend, which then pays the share­holder the net amount and pays the div­i­dend tax to the South African Rev­enue Ser­vice (SARS).

Div­i­dend tax is levied at a rate of 15% of the amount of any div­i­dend or for­eign div­i­dend paid or payable (which­ever is the ear­lier) by South African com­pa­nies or by non-res­i­dent com­pa­nies in re­spect of for­eign shares listed on the JSE.

Where dis­tri­bu­tions in specie are made, spe­cial rules gov­ern the with­hold­ing obli­ga­tion. This rate is 5% higher than the rate at which STC was im­posed. This un­ex­pected in­crease was an­nounced in the bud­get in Fe­bru­ary.

The per­sons li­able for div­i­dends tax in­clude:

The ben­e­fi­cial owner of a div­i­dend, to the ex­tent that the div­i­dend does not con­sist of a dis­tri­bu­tion of an as­set in specie;and

A res­i­dent com­pany which de­clares and pays a div­i­dend, to the ex­tent that the div­i­dend con­sists of a dis­tri­bu­tion of an as­set in specie.

A “ben­e­fi­cial owner” is the per­son en­ti­tled to the ben­e­fit of the div­i­dend at­tach­ing to a share. A nom­i­nee, or an agent hold­ing shares on be­half of an­other, is not a ben­e­fi­cial owner.

The li­a­bil­ity for div­i­dend tax is trig­gered on the ear­lier of the date on which the div­i­dend is paid or be­comes payable by the com­pany which de­clared the div­i­dend. There­fore, if a com­pany de­clares a div­i­dend payable to share­hold­ers, with­out stip­u­lat­ing a fu­ture date on which the div­i­dend be­came payable, the date of dec­la­ra­tion of the div­i­dend would be de­ci­sive.

Although div­i­dends tax is im­posed on the ben­e­fi­cial owner, the obli­ga­tion to with­hold div­i­dends tax (sub­ject to cer­tain ex­emp­tions) is im­posed on:

Any res­i­dent com­pany that de­clares and pays a div­i­dend;

Any reg­u­lated in­ter­me­di­ary pay­ing div­i­dends that were de­clared by any other per­son; and Any in­surer. If the per­son re­spon­si­ble for with­hold­ing div­i­dends tax fails to with­hold or pay over to SARS that per­son could in­cur per­sonal li­a­bil­ity for the div­i­dends tax.

The com­pany pay­ing the div­i­dend has no obli­ga­tion to with­hold div­i­dends tax in the fol­low­ing cases:

Where the re­cip­i­ent of the div­i­dend has sub­mit­ted a dec­la­ra­tion from the ben­e­fi­cial owner that the div­i­dend is ex­empt from the div­i­dends tax in terms of the leg­is­la­tion, by a date de­ter­mined by the com­pany or by the date of pay­ment of the div­i­dend and a writ­ten un­der­tak­ing to in­form the com­pany in writ­ing if the per­son ceases to be the ben­e­fi­cial owner.

If the ben­e­fi­cial owner forms part of the same group of com­pa­nies as the payor com­pany; or

If the div­i­dend is paid to a “reg­u­lated in­ter­me­di­ary”.

The ex­emp­tions for com­pa­nies in the same group of com­pa­nies, or reg­u­lated in­ter­me­di­aries, do not re­quire the sub­mis­sion of an ex­emp­tion dec­la­ra­tion and these ex­emp­tions ap­ply au­to­mat­i­cally.

The rate of div­i­dends tax can be re­duced if the ben­e­fi­cial owner has sub­mit­ted a dec­la­ra­tion to the com­pany that a re­duced rate ap­plies in terms of a dou­ble tax­a­tion treaty.

As stated, if the div­i­dends are paid to a reg­u­lated in­ter­me­di­ary, the com­pany pay­ing the div­i­dend does not have any obli­ga­tion to with­hold div­i­dends tax, be­cause the “reg­u­lated in­ter­me­di­ary” has an obli­ga­tion to with­hold div­i­dends tax when it pays the div­i­dend to the ben­e­fi­cial owner. Reg­u­lated in­ter­me­di­aries in­clude cen­tral se­cu­ri­ties de­posi­tary par­tic­i­pants au­tho­rised users as de­fined in the Se­cu­ri­ties Ser­vices Act; nom­i­nees ap­proved by the Regis­trar, other ap­proved nom­i­nees; col­lec­tive in­vest­ment schemes in se­cu­ri­ties; or ap­proved cor­po­rate trans­fer sec­re­taries.

A div­i­dend (if it is not a dis­tri­bu­tion in specie) is ex­empt from div­i­dends tax where the ben­e­fi­cial owner is:

A res­i­dent (South African) com­pany;

The gov­ern­ment, a pro­vin­cial ad­min­is­tra­tion or a mu­nic­i­pal­ity;

An ap­proved public or­gan­i­sa­tion;

A trust con­tem­plated in sec­tion 37A

ben­e­fit (clo­sure re­ha­bil­i­ta­tion trust); Cer­tain ex­empt in­sti­tu­tions; Pen­sion and ben­e­fit funds; Cer­tain gov­ern­ment agen­cies; A share­holder in cer­tain reg­is­tered mi­cro busi­nesses; and

Non-res­i­dents who re­ceive for­eign div­i­dends paid by non-res­i­dent com­pa­nies, on JSE listed shares and the for­eign div­i­dend does not con­sist of a dis­tri­bu­tion of an as­set in specie.

Div­i­dends will not be sub­ject to div­i­dends tax if the div­i­dend does not ex­ceed the STC credit of the com­pany; and the com­pany has com­plied with cer­tain ad­min­is­tra­tive no­ti­fi­ca­tion re­quire­ments.

STC cred­its have to be used up in a three-year pe­riod.

Pay­ments of div­i­dends tax must be made by the last day of the month fol­low­ing the month dur­ing which the div­i­dend is paid by the com­pany that de­clared the div­i­dend and must be ac­com­pa­nied by a re­turn.

Where the ben­e­fi­cial owner did not sub­mit dec­la­ra­tions (for re­duced rates or ex­emp­tions) in time, but he does so within three years from the date of pay­ment of the div­i­dend, the com­pany can re­fund the div­i­dends tax from any amount of div­i­dends tax with­held by:

The com­pany within one year af­ter the sub­mis­sion of the dec­la­ra­tion; or

The in­ter­me­di­ary af­ter the sub­mis­sion of the dec­la­ra­tion.

If fu­ture with­hold­ings are in­suf­fi­cient, a com­pany may re­cover the ex­cess from SARS, if the claim for re­cov­ery is sub­mit­ted within four years from the date of the pay­ment. There is no such right of re­cov­ery for in­ter­me­di­aries. No di­rect re­fund claims by tax­pay­ers are al­lowed.

The leg­is­la­tion is new, and un­doubt­edly prac­ti­cal is­sues will arise.

Picture: MORGUEFILE

Where dis­tri­bu­tions in specie are made, spe­cial rules gov­ern the with­hold­ing obli­ga­tion. This rate is 5% higher than the rate at which STC was im­posed This un­ex­pected in­crease was an­nounced in the bud­get in Fe­bru­ary

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