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Revealed: Two dividend payments exempt from dividends tax

by , 27 November 2013
Did you know that some dividend payments are automatically exempt from Dividends Tax (DT)? That's right. If your company pays these out, the beneficial owners of your dividend payouts won't have to submit the declaration and undertaking to prove it! Here are the two dividends that are exempt from DT.

As mentioned, some dividend payments are automatically exempt from DT.

What are they?

The Practical Tax Loose Leaf Service says these taxpayers are automatically exempt from DT:

  • A resident company; and
  • The eight institutions mentioned below.

Let's take a closer look at each.

These two dividend payments are automatically exempt from DT

#1: A resident company

Any dividend payment made to a company (as the beneficial owner) that's resident in South Africa is exempt from DT.

Here's an example of a resident company: Company 1 owns all the shares in company 2. And company 2 owns all the shares in company 3.

All three companies are resident in South Africa. Nomsa owns all the shares in company 1.

Company 3 pays a dividend of R60 000 to company 2 and company 2 pays the same amount as a dividend to company 1.

Company 1 pays a dividend of R30 000 to Nomsa.

What are the DT consequences?

Company 3 has no liability to withhold DT on the R60 000 dividend payment, as the beneficial owner, Company 2, is a resident in South Africa. The dividend is exempt.

Company 2 has no liability to withhold DT on the R60 000 dividend payment as the beneficial owner, Company 1 is a resident in South Africa. The dividend is exempt.

Company 1 is liable to pay DT of R4 500 (R30 000 x 15%) on the dividend payment to Nomsa. Nomsa is ultimately liable for the DT, but the DT is withheld by Company 1 and paid over to SARS, much like employees' tax deductions. Nomsa will get R25 500 (R30 000 – R4 500) in cash.

#2: Eight institutions exempt from DT

The following eight beneficial owners of shares won't pay DT:

  • Government, provincial administration or municipalities;
  • Public Benefit Organisations (PBO);
  • Section 37 rehabilitation trust;
  • A Section 10(1)(CA) institution, board or body engaged solely in research;
  • Pension and provident funds;
  • Institutions such as CSIR, SAIDC, SANRAL and Armscor;
  • A shareholder in a registered micro business, paying that dividend, up to an annual limit of R200 000; and
  • A non-resident receiving a dividend from a listed share in a company that is not resident in South Africa.

Important: You must ensure your company has a 'declaration' and 'undertaking' document ready for those shareholders who are exempt from DT.

A shareholder escapes the DT net only if he falls into one of the categories listed above. He must submit a declaration and undertaking document to SARS. And he'll get this from your company.

If he doesn't submit the document, he won't qualify for the exemption.

The good news is, the shareholder only needs to declare his exempt status once. It'll remain valid until his circumstances change.
 

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