Dividends tax – get ready
07 February 2012
Posted by: SAIT Technical
Dividends tax – get ready
PWC Synopsis - RC Williams
The rate of tax will be 10% in respect of dividends distributed by companies that are resident for tax purposes and dividends distributed by non-resident companies in respect of shares listed on the JSE.SA-resident companies will no longer have to account for STC going forward, although they may carryforward STC credits that will have to be allocated to their shareholders. In the case of dividends declared by listed companies, the responsibility for managing the DT administration will in most cases fall on the regulated intermediaries (CSDs, brokers, nominees, etc.) — although are certain exceptional circumstances where the administration burden remains with the listed company. For unlisted companies, the responsibility for accounting for STC will be replaced by administration of DT. For regulated intermediaries, they will assume new responsibilities that have not previously affected them. These companies and regulated intermediaries will be required to withhold and pay the appropriate amount of the tax over to SARS. In the discussion that follows, the term "company” may be held to apply equally to regulated intermediaries who will administer the DT exposures of shareholders of listed companies.
As a starting point, the abolition of STC will trigger the termination of a final dividend cycle, i.e. which ends on 31 March 2012 (unless the company actually declares a dividend on 31 March 2012). The purpose of this is to compute the value of unutilised STC credits available at that date. If no actual dividend is declared on 31 March 2012, the computation will reflect a dividend declared of zero and will record all dividends received during the final (deemed) dividend cycle plus unutilised dividend credits from earlier cycles. The STC credits recorded as unutilised will then remain available to alleviate the liability of shareholders to DT for a period of five years. Without this mechanism there would be a potential double tax on distributions. It does not appear as if companies will be required to submit a return for STC purposes, as no STC will be payable as a result of the termination of the dividend cycle. However, it would be advisable that companies that may have unutilised STC credits determine the amount of credits that are available to relieve DT at that date without significant delay.
Payment of dividends tax
Any company that pays any dividend on or after 1 April 2012 is liable to withhold DT at the rate of 10% from the amount of the dividend and to pay the amount so withheld over to SARS. The company is relieved from withholding the DT in the following circumstances:
- If the beneficial owner is a company in the same "group of companies” as the declaring company;
· If the recipient is a regulated intermediary;
· If the company has received the requisite declaration confirming that the beneficial owner is exempt from DT;
· If the company has received the requisite declaration confirming that the beneficial owner is entitled to relief from DT in terms of a valid double tax agreement (DTA), to the extent permitted in the DTA;
· If the company has unutilised STC credits which are applied in reduction of the liability, to the extent that the credits are so applied.
Identification of persons entitled to relief
For the efficient administration of DT it will be vital that each company understands the composition of its shareholders, so that it can identify the circumstances in which it will have to comply with its statutory obligation to withhold the tax from payments to such shareholders. The legislation incorporates a default position; every qualifying company must withhold tax at the rate of 10% on any dividend paid on or after 1 April 2012, unless the beneficial owner of the share in respect of which the dividend is paid is exempt or subject to rate relief under a double tax agreement, or if the dividend is payable to a company in the same group of companies (as defined in section 41 of the Income tax Act) or a regulated intermediary. The company may not of its own motive determine that a shareholder is exempt, but must have obtained a declaration in prescribed form stating that the beneficial owner is an exempt person and that the beneficial owner undertakes to notify the company in the event that such person ceases to be the beneficial owner of the share. Similarly, in the event that the beneficial owner is not exempt but entitled to claim a reduction in the rate of tax in terms of a valid doubletax agreement between that person’s state of residence and South Africa, the company must be in possession of a declaration in prescribed form stating that the beneficial owner is entitled to the relief and undertaking to notify the company in the event that such person ceases to be the beneficial owner. In a sense, DT is regulated by evidence – a company must withhold the 10% tax from dividend payments (to persons other than qualifying group companies and regulated intermediaries) unless it holds evidence that it is not required to do so. SARS has issued draft documentation on its website (www.sars.gov.za/Tax Types/Dividends Tax) which provides examples of the forms that may need to be completed to enable companies and regulated intermediaries to comply with these requirements (see document entitled "Business Requirement Specification(BRS): Dividends Tax(Version 1.0.0)” pages 61 – 66). Efficient DT administration will initially require that the companies obtain declarations from their shareholders/beneficial owners prior to payment of the first dividend payable on or after 1 April 2012. Thereafter, when changes in ownership of shares occur, it will be incumbent on the person who made the declaration to inform the company of the change in ownership. In the event that a person entitled to exemption or relief provides evidence of such entitlement afterthe tax has been withheld and paid to SARS by filing the prescribed declaration within three years after the date of payment of the dividend, the company is obliged to refund the DT that has been overpaid and entitled to recover the amount by reducing its next subsequent DT declaration to SARS. If the company fails to refund the amount in full within one year, the beneficial owner may apply for a refund from SARS. However, the application for refund must be filed with SARS not later than four years from the date of payment of the dividend.
Utilising STC credits
After 1 April 2012, any company that has unutilised STC credits is obliged to apply the credits against dividends that it declares on or after that date. The liability to pay DT is reduced by the STC credits that are applied. In addition, the company paying the dividend will be obliged to provide each recipient of that dividend with a statement of the amount of STC credit that has been utilised. It should be noted that credits are applied pro rata to dividends distributed, regardless of whether the shareholder is exempt from DT. Where a shareholder is a company that receives a dividend subject to STC credits, it must increase its STC credit pool by the amount of credit that is reflected on the certificate that it receives.
Companies and regulated intermediaries would be well advised to keep themselves informed of the developments in this field. SARS is developing systems that will permit online payment of DT, which may require examination of existing systems and procedures for some companies and regulated intermediaries. Withthe implementation date now a little over eight weeks away, there is much to think about.