Are you prepared for dividends tax?
by Faisal Khan, Angela Poggiolini-Lagoa and Nirvana Gounden
AFTER a three-year delay, dividends tax comes into effect on April 1 and there are numerous steps to ensure a smooth transition.
Finance minister Pravin Gordhan surprised the market by announcing this tax would come into effect at 15 percent rather than the anticipated 10 percent.
Rather than companies being liable for secondary tax on companies (STC), company dividends will now attract dividends tax for the shareholder. The South African Revenue Service (SARS) will deem the dividend paid when the shareholder has an unconditional entitlement to that money. In the shift from STC to dividends tax, this date becomes important in determining whether the dividend attracts STC or dividends tax.
However, what steps should companies and shareholders take in preparation? Taxpayers qualifying for a dividends tax exemption (where the taxpayer is a resident company) or qualifying for a reduced rate (where a double tax agreement applies) must declare this information to the companies concerned. Companies declaring dividends must identify their shareholders and record those qualifying for exemption or a reduced rate. If the company does not have the shareholders’ declaration forms, it must withhold dividends tax at 15 percent.
The final STC dividend cycle ends on March 31 and any unused STC credits at that date may be carried forward and used within three years. However, companies should submit a STC return for the final dividend cycle disclosing the available STC credits and must inform shareholders of the amount by which any dividends after April 1 utilises these unused STC credits. Dividends paid after April 1 will be deemed to first reduce the unutilised STC credits.
The systems, procedures and controls assume added importance in unlisted companies. If the company does not pay over the liable dividends tax, the shareholders or directors become personally liable for that tax as well as for any additional tax, penalties or interest for which the company would be liable.