Dear taxpayer,

As you’ve probably heard by now, South Africa is slowly phasing out the Secondary Tax on Companies (STC) paid on company dividends. And this is being replaced by a withholding tax on dividends (WTD).
If you’re a subscriber to the Practical Tax Loose Leaf, then you’ll be getting all the information you need, in your next Tax Update.

But while you wait, here’s something to make a note of. There are eight dividend types that WON’T be subject to WTD.

Eight types of dividends that won’t be subject to the WTD

Although the general rule is that all dividends declared by South African resident companies will be subject to the WTD, there are a number of exemptions. Dividends paid to the following shareholders won’t be subject to the WTD (Section 64F):

1.    South African companies;
2.    The government, a provincial administration or a municipality and various quasi-government institutions such as the CSIR, Armscor, SANRA, the Development Bank of Southern Africa, electricity distributors and water providers;
3.    Environmental rehabilitation trusts;
4.    Approved public benefit organisations (PBOs);
5.    Institutions, boards or bodies established under any law and exempt from tax in terms of Section 10(1)(cA) of the Income Tax Act;
6.    Pension, provident, retirement annuity or benefit funds;
7.    Traditional councils or traditional communities established or recognised under the Traditional Leadership and Governance Framework Act, 2003; and
8.    The first R200 000 of dividends paid to shareholders of a micro business (on the turnover tax system) during a particular year of assessment.

The reason for exempting dividends paid from one resident company to another is to prevent the cascading effect of repeatedly charging tax on the same income as it flows from one company to another, through a number of levels of companies (i.e. where there are complex group structures).

So if your dividends fall into any of these eight categories, you’re free from WTD!

Have a wonderful week!

Fulvia Stoltz
Managing Editor
 

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