Most Read Contributor in South Africa, September 2016
With the introduction of the new dividends tax on 1 April 2012,
the distinction between cash dividends and dividends in
specie requires consideration.
Where a company declares and pays a dividend and that dividend
consists of a distribution of an asset in specie, the
amount of the dividend is deemed to be equal to the market value of
the asset on the date that the dividend is deemed to be paid, that
is, the earlier of the date on which the dividend is paid or
becomes payable by the company declaring the dividend.
In terms of the new rules, in the case of a cash dividend
declared by a South African resident company, or a foreign company
if the share in respect of which that dividend is paid is a listed
share, the declaring company or regulated intermediary is liable to
withhold the dividends tax. The liability for the tax is, however,
that of the beneficial owner thereof, that is, the person entitled
to the benefit of the dividend attaching to the share. Where the
dividend is an in specie dividend, the liability for the
dividends tax is on the company declaring the dividend.
There are certain exemptions from the dividends tax. The main
exemption that may apply in the case of the declaration of a cash
dividend is where the beneficial owner of such dividend is a South
African resident company. Other exemptions include dividends
received by beneficial owners that are Public Benefit Organisations
and Pension Funds. Where a company declares and pays a dividend
in specie, the dividend would be exempt from the dividends
tax to the extent that it constitutes a distribution of an asset
in specie if the person to whom the payment is made has,
by the date of payment of the dividend, submitted to the declaring
company a declaration that the portion of the dividend that
constitutes a distribution of an asset in specie would, if
that portion had not constituted an asset in specie, have
been exempt from the dividends tax. Dividends in specie
are also exempt from the dividends tax where the beneficial owner
forms part of the same "group of companies", as defined
in section 41 of the Income Tax Act, No 58 of 1962 ("the
Act") as the company declaring the dividend. Finally,
dividends in specie are exempt if the dividend constitutes
a disposal upon the cessation of South African residence by a
company or trust, or upon the liquidation, winding-up or
deregistration of a company or trust.
Dividends tax is levied at a rate of 15% of the amount of the
dividend paid. In certain instances, a reduced rate of dividends
tax may be applicable. In the case of cash dividends declared and
paid, and where the declaring company withholds dividends tax, the
company must withhold dividends tax at a reduced rate if the person
to whom the payment is made has submitted to the company a
declaration that the dividend is subject to a reduced rate as a
result of the application of an agreement for double taxation
("DTA"). In addition, the recipient of the dividend must
submit a written undertaking to forthwith inform the company in
writing should the beneficial owner cease to be the beneficial
owner. The same rules apply where the regulated intermediary
withholds the dividends tax.
A company that declares and pays a dividend that constitutes a
distribution of an asset in specie is liable for the dividends tax
at a reduced rate in respect of that portion of the dividend that
constitutes the distribution of an asset in specie if the
person to whom the payment is made has, by the date of payment,
submitted a declaration to the company stating that the portion of
the dividend in specie would, if that portion had not
constituted a distribution of an asset in specie, have been subject
to a reduced rate as a result of the application of a DTA. In other
words, in the case of dividends in specie, there is no
qualification for treaty relief since the liability for dividends
tax is on the declaring company, but the analysis should be
performed as if the dividend in question was a cash dividend in
order to determine whether any treaty relief is available. Where
treaty relief is available, the declaring company would withhold
dividends tax at the applicable rate.
In the case of foreign dividends in specie, the
non-resident beneficial owner may not be able to utilise the
dividends tax paid as a credit against the liability arising in its
jurisdiction. This would, however, depend on the jurisdiction in
question. The South African Revenue Service ("SARS")
indicated that foreign dividends in specie should be
subject to normal tax in South Africa. However, in terms of section
9(4) of the Act, foreign dividends are not regarded as being from a
South African source. As a result, and on the basis that section
9(4) does not distinguish between cash and non-cash dividends, any
foreign dividend should not suffer tax in South Africa. This point
may, however, still be open for debate insofar as it relates to
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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