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DIVIDEND TAX EXEMPTION - PITFALLS TO AVOID

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Article contributed by LUCRO AUDITING AND CONSULTING
 

Dividends Tax is imposed at a rate or 15% on the receipt of dividends. It is a withholding tax, as it must be withheld and paid to SARS by the company paying the dividend. As such it is not a tax on the company but rather a tax on the recipient of the dividend.

Dividends Tax payments could be exempt or reduced depending on the nature of the recipient. The exemptions are “elective” in that they only apply where the company distributing the dividends receives the required notification (on the prescribed SARS form) from the recipient prior to the payment of the dividends.

Where the required declaration was not held on the relevant date, and is received within three years of the date of payment of the dividend, then the company has to refund the dividend tax to the recipient of the dividend. The declaring company must refund the excess out of any dividends tax withheld by it within one year of the date of the submission of the late declaration. If the dividend tax withheld within the one-year period is insufficient to cover the full refund value, then the company may recover the excess from the Commissioner, which must be claimed within four years of the date of payment of the dividend.  

No refund of dividends tax is available to the company where the required declarations and undertakings were received late in the case of a dividend in specie.

Exempt entities include, amongst others, local companies.

Some dividends payments are automatically exempt and do not require submission. This includes group companies as defined, where the shareholder holds at least 70% of the shares of the subsidiary company.

Note, however, that local trusts do not qualify for the exemption and Dividends Tax must be withheld on dividend payments to the Trust.

Failure to withhold dividends tax could result in personal liability for directors

Also note that the Dividends Tax is triggered on payment of the dividends (as opposed to declaration).

The company declaring the dividend must make such declaration to SARS on the required form.

Some companies are aware of the exemption, however are not aware of the requirement to receive documentation before payment. This cannot be done after the fact. In addition: even if the dividend is validly exempt, the SARS Dividend Declaration form must be filed timeously. The result of non-compliance could be costly. Please contact us if you need assistance with the required documentation or would like some additional information and / or advice.

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