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
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.
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