A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation can re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.
The obligation rests with the company declaring the dividend to withhold the tax and pay it over to SARS. The dividend tax is a withholding tax, (charged at 20%) on dividend distributions.
The submission of the dividend declaration can be done as a return on e-filing, where all the info will be submitted, the amount declared, to whom (including all their details) and the date. Once the return is filed and the declaration made, the dividend tax payment is due by the last day of the following month.
Dividend declarations are made by:
- South African tax resident company; or
- Foreign Company whose shares are listed on a South African Exchange.
In some instances, you will have dividends that are exempt from dividends tax. Like the following entities:
- Local South African registered companies (if the declaration is made from one company to another, then no tax)
- South African Government Entity
- Public Benefit Organizations (i.e. non-profit companies)
- Mining rehabilitation trusts
- Pension, provident, preservation, retirement annuity, beneficiary and benefit funds
- Shareholders of a registered microbusiness (i.e. companies registered for Turnover Tax) where the dividend does not exceed R200, 000 per annum
- Non-residents receiving dividends from foreign companies listed on the Johannesburg Stock Exchange
- A natural person in respect of a dividend paid on or after 1 March 2015, for a tax-free savings account.
Difference between Dividends Tax and Secondary Tax on Companies?
The main difference lies in who is liable for the tax. Dividends Tax is a tax levied on shareholders when they receive dividends, whereas STC was a tax levied on companies on the declaration of dividends. There is no overlap between STC and Dividends Tax. If a dividend was declared before 1 April 2012 (irrespective of actual payment date) it was subject to STC. Only where the dividend is declared and paid on or after 1 April 2012 will it be subject to Dividends Tax.