As we are all now well aware, Dividends Tax (DT) comes into effect from 1 April 2012. The crucial difference between STC and DT is that DT is a tax imposed on beneficial owners, and not on the company itself.
The move to a dividends tax regime brings several further changes that affect taxpayers- for one, the effective tax rate under DT will be higher than that under STC. The table below illustrates the change:
| Effective Tax Rate Comparison Table | |||
| STC (10%) | DT (10%) | DT (15%) | |
| Profit before tax |
2,000.00 |
2,000.00 |
2,000.00 |
| Tax (28%) |
560.00 |
560.00 |
560.00 |
| Profit after tax |
1,440.00 |
1,440.00 |
1,440.00 |
| Dividend declared/paid |
1,309.09 |
1,440.00 |
1,440.00 |
| STC paid by the Company |
130.91 |
– |
– |
| Profit retained |
– |
– |
– |
| Divided accrued to shareholder |
1,309.09 |
1,440.00 |
1,440.00 |
| Dividend tax withheld |
– |
144.00 |
216.00 |
| Net amount received by shareholder |
1,309.09 |
1,296.00 |
1,224.00 |
| Income tax on profits in Companys hands |
560.00 |
560.00 |
560.00 |
| STC incurred by Company |
130.91 |
– |
– |
| Dividend tax incurred by shareholder |
– |
144.00 |
216.00 |
| Total tax suffered on Company profits |
690.91 |
704.00 |
776.00 |
|
– |
– |
– |
|
| Shareholder worse off by |
– |
– |
85.09 |
Importantly, companies declaring a dividend after 1 April 2012 are advised to obtain undertakings and declarations from their beneficial owners this includes those beneficial owners which are exempt from DT (such as local companies) as well as foreign beneficial owners that enjoy a reduced rate of DT in terms of a Double Taxation Agreement.
A beneficial owner is a person entitled to the dividend stream, and not necessarily a shareholder. In most instances, however, beneficial owners will be shareholders.
The failure to obtain undertakings and declarations before the payment date of a dividend will result in the Company being compelled to withhold 15% in the way of DT and to pay the amount withheld over to SARS. The beneficial owner will then have to obtain any applicable refund from SARS.
Given the administrative nature of the refund process, it is strongly urged that these undertakings and declarations be obtained timeously. SARS has provided guidance on its website regarding the form these declarations are to take, which is available here.
Ian Teague