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What are the tax implications of receiving foreign dividends from listed shares?

Wednesday, 24 June 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: A South African individual taxpayer owns shares in a foreign property development company which is listed on a foreign stock exchange. He has been advised that, in lieu of dividends, he may purchase additional shares.

Please advise on the following:

1.            What is the tax implication if he receives dividends?

2.            If he takes shares instead of dividends, how will the shares be taxed?

A: We are not sure if we understand the issue.  You mention that ‘in lieu of dividends’ the taxpayer ‘may purchase additional shares’.  Our guidance assumes that the dividends are not used to acquire the new shares (or his own money) – in other words, that the issue is the receipt of a foreign dividend or a return of capital.  If this assumption is not correct our guidance will not be appropriate and you must provide us with more detail to enable us to respond. 

We can’t comment on whether or not the option is available to the person (you say "if he takes shares instead”).  We will only provide guidance with respect to the issue as identified by us. 

We submit that the dividends declared and distributed by the company which is listed on the foreign stock exchange will be a foreign dividend as defined in section 1(1) of the income Tax Act.  A foreign dividend is gross income for an RSA tax resident, but qualifies for certain exemptions – see section 10B.  In terms of section 10B(2) any foreign dividend received by or accrued to a person is exempt from normal tax to the extent that the foreign dividend is received by or accrues to that person in respect of a listed share and does not consist of a distribution of an asset in specie.  In terms of section 1(1) a ‘listed share’ means a share that is listed on an exchange as defined in section 1 of the Financial Markets Act and licensed under section 9 of that Act.  If this exemption doesn’t apply the amount of the foreign dividend will be determined by using the ratio of the number 25 to the number 40. 

If the company doesn’t declare a dividend, but rather reduces its contributed tax capital, the distribution will not be a dividend, but a return of capital.  As this would be a disposal a capital gain or loss will result and the amount of the ‘foreign return of capital’ would be the proceeds.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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