THE NEW DIVIDEND TAX – DOES IT MAKE A DIFFERENCE FOR YOU AND ME?
Yes, indeed it does! On April 1 STC will change to Dividends Tax (DT). Although the impact on the ordinary individual seems small, the change will have a substantial impact on:
- Retirement and savings
- If you receive foreign dividends or are a non-resident in South Africa, you stand to benefit
- Many charities and PBOs will also benefit.
Dividend tax will be 15% (and not 10% as in the case of STC)
What are the differences between STC and DT?
Currently under STC a 10% withholding tax is paid by the company declaring a dividend to SARS. With DT, the tax is increased to 15% and is now levied on the person or entity receiving the dividend. SARS will appoint agents (stockbrokers or the companies paying out the dividend) to pay the tax on behalf of the person or entity receiving the dividend.
The difference is substantial – STC was a blanket tax with no exceptions as companies automatically paid STC on all dividend payments. By shifting the emphasis to dividend recipients, SARS can distinguish who should or should not be paying DT.
DT applies to South African companies and Close Corporations. It also applies to foreign companies trading on the Johannesburg Stock Exchange.
The tax is payable on a prescribed form by the end of the month following the payment of the dividend.
Are there any exemptions?
Dividends will be exempt from dividends tax if the beneficial owner is:
- A South African company or close corporation.
- A State institution.
- A Public Benefit Organisation (PBO). A PBO is a non-profit organisation and this will improve its financial position as PBOs have until now been subject to STC.
- An environmental rehabilitation trust.
- A pension or provident fund or medical aid. This should benefit your retirement savings and medical aid premiums.
- A shareholder of a micro business (up to the first R200 000 of dividends paid per annum).
Reduced rates and other exceptions
- If you are a non- South African resident for tax purposes (and the country where you are resident has a double tax treaty with the South Africa), the withholding tax may be reduced to 5%.
- If you are the owner of a dividend “in specie” (Latin for “in kind “- the company distributes assets to shareholders), this will be taxed at the market value of the assets distributed. So for example if the dividend declared is R100 but the assets are worth R120, R12 withholding tax will be deducted. The onus of an “in specie” dividend falls on the company and not the individual.
- If you receive dividends from a non South African company no DT will be levied but this will form part of your taxable income and must be declared in your tax return. Before the introduction of DT, taxpayers were allowed a R3,700 tax exemption for foreign dividends. Now the maximum tax for foreign dividends is 15% (versus your marginal rate of up to 40%). You may also deduct any dividend tax paid in the foreign country.Important: If you are exempt or partially exempt, complete the SARS form and send to your SARS agent (broker or company) to register the exemption as soon as possible.
IF YOU HAVE ACCUMULATED PROFITS IN YOUR COMPANY OR CC YOU MIGHT WANT TO DECLARE A DIVIDEND AS AT END FEBRUARY 2012 AND PAY THE 10% STC BY END MARCH 2012.