Dividends Tax

Question 1

How is local dividends Taxed in income Tax?

Answer 1

Section 10(1)(k)
- local dividends is completely exempt from normal Tax

Section 64
- experiences 20% Withholding Tax

Question 1

How are foreign dividends Taxed in income Tax?

Answer 1

Section 10B
- it receives a full exemption if it meets one of the following requirements
* the person holds 10% of the total equity shares and voting rights
* other ones
- otherwise, if natural person, it receives a partial exemption of 25/45 portion
- otherwise if it’s a company, the exemption is 7/27

Question 2

When do companies need to withhold dividends tax?

Answer 2

• FOREIGN COMPANIES OR RESIDENT COMPANIES, when they pay dividends to the following people
• South African RESIDENTS (SA companies are exempt from dividends Tax)
• Any foreign shareholder if they hold shares on the JSE

Question 3

what are the implications of a company/ natural person ceasing to be resident during the year of assessment?

Answer 3

section 9H(3)
- disposes of each of its assets at market value on the day before it ceases to be a resident reacquires on the day at its market value
*
- the YOA ends on the day they cease to be a resident
- deemed to have declared a dividend (in specie) on the day prior to ceasing to be a resident, equal to the market value of all its shares less its CTC
- exempt foreign dividends in prior 3 years recouped
- paragraph 64B is disregarded and the capital from then is now included
- the deemed disposal rule above does not apply in respect of immovable property situated in the republic or assets attributable to a permanent establishment in the Republic

Question 4

What are the dividends tax implications of giving an interest free loan to a shareholder of your company?

Answer 4

section 64E(4) of the ITA
- that shareholder is considered a connected person because they have a 25% interest in the company
- the interest that they are getting free is now a demmed dividend in specie
- the value of the dividend is the difference between the interest they are actually paying and the offical rate of interest (something to do with the market rate of interest)
- this must also be apportioned to how much they earned over the year
- the dividend is also deemed to have been paid on the last day of their year of assessment
- the company must then pay over dividends Tax of 20% on this dividend by the end of the last day of the following month

Question 5

what are the dividends tax implications of a sharebuyback?

Answer 5

• a sharebuyback from an “unlisted company” is a dividend as defined, to the extent that it does not result in a reduction of contributed tax capital, therefore there will be dividends tax charged on this
• the value of the CTC is normally given in a percentage and that percentage must be mutiplied against the ordinary share capital of the company NOT the amount paid for the shares. This will give you how much of the money paid, was CTC, the rest is a dividend
  Section 10(1)(k)
• dividends are exempt from gross income but experience dividends tax
• resident companies will be exempt from dividends tax

DTA with united kingdom, article 10(2)(a)
- However, non-resident companies are subject to dividends tax at a reduced rate of 5% if they hold at least 10% of the capital in WAP

Question 6

By when do companies need to pay dividends Tax?

Answer 6

By the end of the month following the month in which the dividend was paid