Dividends Tax And Dividends In Income tax Flashcards
How is local dividends Taxed in income Tax?
Section 10(1)(k)
- local dividends is completely exempt from normal Tax
Section 64
- experiences 20% Withholding Tax
How are foreign dividends Taxed in income Tax?
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
When do companies need to withhold dividends tax?
- 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
what are the implications of a company/ natural person ceasing to be resident during the year of assessment?
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
What are the dividends tax implications of giving an interest free loan to a shareholder who owns 25% or more of your company?
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 deemed dividend in specie
- the value of the dividend is the difference between the interest they are actually paying and the official rate of interest (the market related interest rate in this case is considered to be the official 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
what are the dividends tax implications of a sharebuyback?
- a share-buyback 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 multiplied 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
By when do companies (foreign or local) need to pay dividends Tax to SARS?
By the end of the month following the month in which the dividend was paid
Why is it important to know if a company is listed on the JSE for dividends tax purposes?
According to Section something of the ITA
- If it’s a local company it won’t matter
- but if it is a foreign company then the income will be subject to dividends Tax here in South Africa
In what instances is dividends tax not levied?
According to section 64F(a)
- companies won’t Levi dividends tax on any dividends paid to residents companies
According to something of the ITA
- something else
What are the dividends tax implications when a dividend is declared in specie?
It means that the dividends tax is now owing to SARS from the person who RECEIVED the dividend.
