South Africa: Share Lending Arrangements – More Tax Changes!

Last Updated: 30 September 2014
Article by Magda Snyckers

Most Read Contributor in South Africa, September 2018

The securities lending industry has seen many changes to the taxation of share lending arrangements in South Africa during the last couple of years. In particular, since the introduction of dividends tax on 1 April 2012, the provisions in the Income Tax Act (the "Act") which relate to the income tax and dividends tax treatment of dividends received by borrowers of JSE listed shares and payments made by such borrowers have been regularly amended, often with retrospective effect. The Draft Taxation Laws Amendment Bill which was released on 17 July 2014 ("2014 Draft Bill") is no exception, and again contains changes to the dividends tax provisions relating to payments made by such borrowers.

In order to place the proposed amendments by the 2014 Draft Bill in context, the income and dividends tax treatment of dividends on JSE listed shares borrowed and related payments made by borrowers are summarised below. The summary only deals with amendments to the income and dividends tax treatment relevant for securities lending arrangements in respect of JSE listed shares where such shares are borrowed after the announcement or declaration of a dividend.

Securities lending arrangements would typically result in a transfer of the beneficial ownership of the securities from the lender to the borrower and the borrower may accrue the dividend on the listed shares to the extent that such borrower holds the shares on record date. However, the borrower would not necessarily accrue the dividend as it may have on-delivered the shares to another party (e.g. a purchaser).

In instances where the borrower has accrued the dividend, the income tax treatment of such dividend is relevant. Although dividends which are declared by South African tax resident companies are generally exempt from income tax in the hands of the recipient, since 1 April 2012 such dividends would not be exempt from income tax in the hands of a borrower if the borrower is a company. This is due to one of the provisos to the exemption in section 10(1)(k) of the Act which provides that dividends received by a company in respect of a share borrowed by that company would not be exempt from normal tax (i.e. income tax). The borrower would be able to deduct expenditure incurred by it to the extent that such payments comply with the so-called general deduction formula in section 11(a) read with section 23(g) of the Act.

In addition to the income tax treatment of the dividend in the hands of the borrower, the dividends tax treatment of the dividend also requires consideration.

As noted above, from 1 April 2012 dividends declared by South African resident companies are subject to dividends tax at the rate of 15%. If the dividend is a cash dividend, the dividend's tax liability is that of the beneficial owner of the dividend and the payor of the dividend has a withholding tax liability, subject to certain exemptions. If the dividend were to consist of a distribution of an asset in specie, the liability is on the company declaring and paying the dividend. The dividends tax is further levied on foreign dividends (as defined in the Act) paid by a foreign company (i.e. a non-resident company) if the share in respect of which the dividend is paid is a listed share (i.e. listed on the JSE) and it is a cash dividend.

Section 64F(1) of the Act contains various exemptions for beneficial owners of dividends. For example South African tax resident companies are exempt from the dividends tax, dividends which have been included in a taxpayer's "income" (as defined) are exempt from dividends tax and foreign dividends which are subject to the dividends tax and are received by a non-resident are exempt from dividends tax.

Therefore, to the extent that the borrower in a securities lending arrangement is a South African resident company or has included the dividend in its income in doing its normal tax calculation, the dividend such borrower receives would be exempt from dividends tax. Similarly, where the borrower is a non-resident company and the JSE listed share was issued by a non-resident company, the borrower would be exempt from dividends tax.

However, section 64EB(2) of the Act was introduced with effect from 1 September 2012 and it was applicable to transactions entered into on or after that date and to amounts paid on or after 1 October 2012 in respect of transactions entered into before 1 September 2012. It is provided that where a person that is a beneficial owner of a dividend contemplated in section 64F, borrows a share in a listed company from another person and a dividend is either announced or declared before that share is borrowed, so much of any amount paid by the person in respect of such borrowed share as does not exceed the amount of the dividend, is deemed to be a dividend paid for the benefit of that other person.

Therefore, section 64EB(2) was aimed at levying dividends tax on manufactured dividends paid by borrowers of listed shares. This section was intended as an anti-tax avoidance section in order to levy dividends tax on manufactured dividend payments in transactions where the securities lending arrangement is entered into by, say a non-resident lender, after announcement of a dividend but before record date in order to enable a resident borrower to claim an exemption from dividends tax by being the beneficial owner of the dividend on record date.

On 12 December 2013 the Taxation Laws Amendment Act, No 31 of 2013, was promulgated which introduced amendments to section 64EB(2). These amendments were deemed to come into operation on 4 July 2013 and applied to amounts paid on or after that date. The amendments to section 64EB(2) removed the "beneficial owner" requirement in that they applied where a person listed in section 64EB(2)(a) (such as a resident company or a person that included the dividend in its income) borrowed a share in a listed company and a dividend was either announced or declared before that share is borrowed. If the amended section 64EB(2) applied, the dividend which was announced or declared before the share was borrowed, is deemed to have been paid by the borrower to the lender and the lender is deemed to have received a dividend equal to the amount paid by the borrower to the lender.

The amended section 64EB(2) effectively results in the dividends tax liability being placed on both the borrower (or beneficial owner if another party accrued the actual dividend) and the lender. As noted above, the borrower would have been the beneficial owner of the dividend if it held the shares on record date. As the provisions of section 64EB(2) deem the borrower to have paid the dividend, it picks up a withholding obligation and a secondary liability for the dividends tax on such payment. The provisions apply notwithstanding the fact that the borrower may not have been the beneficial owner of the dividend. As such, in instances where say, a resident borrower entered into a securities lending arrangement over JSE listed shares with a non-resident lender after the date on which the dividend was announced it would have a dividend tax withholding obligation on payments made to the non-resident lender irrespective whether it accrued the dividend or not.

The 2014 Draft Bill now proposes to amend the provisions of section 64EB(2) which amendments, if promulgated in their current form, will have been deemed to come into operation on 4 July 2013 and will apply in respect of amounts paid on or after that date. The latest proposed amendments will result in deeming the amount paid by the borrower to the lender to be a dividend paid for the benefit of the lender. As such, it changes the section by removing the reference to the dividend which was declared by the listed company being deemed to be paid by the borrower and replacing it with deeming the manufactured dividend to be a dividend paid by the borrower. It still does not require the borrower to the beneficial owner of the dividend which was declared by the listed company. As such a borrower can still pick up a withholding obligation notwithstanding that it did not accrue the dividend.

In the light of the above, borrowers and lenders of JSE listed securities should ensure that they understand the tax implications of the lending arrangements that they enter into and keep an eye on the tax amendments as these may impact on current and previous transactions.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions