DIVIDEND WITHOLDING TAX – EFFECTIVE 01 APRIL 2012

Background

In 2007 the Minister of Finance announced that Secondary Tax on Companies (“STC”) will be replaced by a Dividend Withholding Tax (“DWT”). Subsequent to this announcement legislation has been enacted to provide for the implementation of DWT. In a recent government gazette the Minister of Finance has announced that DWT will come into operation on 1 April 2012 (“the Effective Date”).

Currently South African companies listed on the JSE Limited (the “JSE”) pay STC to the South African Revenue Services (“SARS”). The amount of STC is determined by reference to the dividends declared by the company after taking into account any STC credits applicable.

From the Effective Date DWT will be levied at a rate of 10% (ten percent) based on dividends declared and paid by companies. From an administrative perspective the Income Tax Act No 58 of 1962 (the “ITA” ) provides for DWT to be deducted by the authorised regulatory intermediary and a net amount (gross dividend less DWT) paid to the shareholder. As a member of the JSE, SBG Securities (Pty) Ltd (“SBG Securities”) is regarded for purposes of the ITA as a regulated intermediary. A regulated intermediary will, inter alia, be responsible for making the DWT payments to SARS on behalf of beneficial shareholders, subject to certain exemptions.

Exemptions provided in the ITA

The ITA in Section 64F provides for various exemptions with regard to the imposition of DWT based on the nature or status of the beneficial shareholder. The current list of exemptions are as follows:
A South African resident company or close corporation;
The South African Government, provincial administration or a local municipality;
A South African Public Benefit Organisation (“PBO”) approved by the Commissioner in terms of Section 30(3) of the ITA;
A trust contemplated in section 37A of the ITA (i.e. a rehabilitation trust);
An institution, board or body contemplated in section 10(1)(cA) of the ITA (examples: Water Board, tribal authorities);
A fund contemplated in Section 10(1)(d)(i) (i.e. a South African pension, provident or retirement annuity fund ) or Section 10(1)(d)(ii) (i.e. a benefit fund, being a friendly society registered under the Friendly Societies Act, 1956 and any medical scheme registered under the provisions of the Medical Schemes Act, 1998);
A person contemplated in section 10(1)(t) (examples: CSIR, SANRAL, Development Bank of South Africa);
A shareholder in a registered micro business, as defined in the Sixth Schedule (limited to the first R200 000 of these dividends). Micro business is defined as “any person whose qualifying turnover for a year of assessment does not exceed R1 000 000”;
A natural person who is a shareholder or member and the dividend received constitutes the Capital Gains Tax (“CGT”) free disposal of his/her primary residence (limited to the first R1 500 000 gain made on the disposal of the primary residence);
A person who is a non-resident and the dividend is paid by a non-resident company.
It is further noted that special provisions apply to dividends in specie which will result in companies being liable to pay the DWT.

What is required of SBG Securities Clients

We encourage all clients to review the list of exemptions together with your tax consultant in order to assess whether or not any of the aforesaid exemptions apply. Please note that it is your responsibility to advise SBG Securities timeously of any applicable exemptions and to provide SBG Securities with the documentation and information required by SARS in this regard. A further communication will be sent to all clients once SARS has finalised the declarations and undertakings to ensure that SBG Securities has the relevant information relating to DWT.

It is further noted that as a consequence of the aforesaid amendments to the ITA, SBG Securities will be required to amend its trading mandate(s) to include provisions relating to DWT. All clients will therefore be required to accept a revised SBG Securities trading mandate in due course, which revised terms shall take effect from no later than the Effective Date.