Comprehensive Guide to Dividends Tax

1 Comprehensive Guide to Dividends Tax (Issue 5) Comprehensive Guide to Dividends Tax Dividends Tax Issue 5 Comprehensive Guide to Dividends Tax (Issue 5) Table of Contents Preface .. i Chapter 1 Introduction to Dividends tax .. 1 Methods of taxing Dividends .. 1 The imputation system .. 1 The classical system .. 1 The corporate level system .. 2 Replacement of STC with Dividends tax .. 2 Reasons for the change from STC to Dividends tax .. 3 Change from a company-level tax to a tax on holders of 3 A change in the tax base .. 4 Differences between STC and Dividends tax.

2 4 Implementation of Dividends tax .. 5 Dividends tax vs normal tax .. 6 Provisions of the Act that combat tax avoidance relating to Dividends .. 7 Chapter 2 Scope and definitions (ss 1(1) and 64D) .. 9 Introduction .. 9 Definitions [s 1(1)] .. 10 Definition company .. 10 Definition contributed tax capital .. 11 Definition dividend .. 27 Definition equity share .. 43 Definition foreign dividend .. 43 Definition JSE Limited Listings Requirements .. 44 Definition listed company .. 44 Definition listed share.

3 45 Definition return of capital .. 45 Definition share .. 48 Definitions (s 64D) .. 49 Definition beneficial owner .. 49 Definition dividend .. 52 Definition dividend cycle .. 52 Definition effective date .. 53 Definition regulated intermediary .. 53 Definition STC credit .. 56 Chapter 3 Levy of Dividends tax, liability for Dividends tax, deeming provisions and special rules applying to specified companies (ss 8F(2), 8FA(2), 9H(3), 12Q(3), 24BA(3)(b), 25BB(6), 26B(2), 31(3), 64E, 64EA and 64EB) ..57 Application and rate of Dividends tax and special rules applying to headquarter companies, oil and gas companies, REITs and controlled companies and international shipping companies [ss 12Q(3), 25BB(6), 26B(2) and 64E(1)].

4 57 Companies liable to pay Dividends 58 Dividends paid by headquarter companies [s 64E(1)] .. 60 Dividends paid by oil and gas companies [s 26B(2)] .. 60 Dividends or interest paid by a REIT or a controlled company [s 25BB(6)(a) and (b)] .. 62 Dividends paid by international shipping companies [s 12Q(3)] .. 65 Date on which a dividend is deemed to be paid [s 64E(2)] .. 67 A dividend that does not consist of a distribution of an asset in specie [s 64E(2)(a)] .. 67 Comprehensive Guide to Dividends Tax (Issue 5) A dividend that consists of a distribution of an asset in specie declared by a listed company or a company that is not listed [s 64E(2)(b)].

5 72 Amount of distribution of an asset in specie [s 64E(3)] .. 72 A financial instrument listed on a recognised exchange [s 64E(3)(a)] .. 72 Other assets [s 64E(3)(b)] .. 73 Company deemed to have paid a dividend Amount owing on a debt [s 64E(4)] .. 74 Company deemed to have paid a dividend Amount owing on a debt [s 64E(4)(a)] .. 74 Nature and amount of dividend deemed to have been paid [s 64E(4)(b)] .. 76 Deemed date of payment of deemed dividend [s 64E(4)(c)] .. 79 Meaning of market-related interest [s 64E(4)(d)] .. 79 Debt owing previously subject to STC [s 64E(4)(e)].

6 81 Amount of dividend denominated in a currency other than the currency of South Africa [s 64E(5)] .. 82 Company and regulated intermediary deemed to have paid the amount of Dividends tax withheld to the beneficial owner [s 64E(6)] .. 83 Company deemed to have paid the amount of Dividends tax withheld to the beneficial owner [s 64E(6)(a)] .. 83 Regulated intermediary deemed to have paid the amount of Dividends tax withheld to the beneficial owner [s 64E(6)(b)] .. 83 Liability for Dividends tax and deeming provisions (ss 8F(2), 8FA(2), 9H(3)(c)(iii), 24BA(3)(b), 31(3), 64E(4)(b)(i) and 64EA).

7 84 dividend in cash Beneficial owner liable for Dividends tax [s 64EA(a)] .. 84 Dividends in specie and deemed Dividends in specie Company declaring and paying dividend liable for Dividends tax [ss 8F(2), 8FA(2), 9H(3)(d)(iii), 24BA(3)(b), 31(3), 64E(4)(b)(i) and 64EA(b)] .. 85 Deemed Dividends (s 64EB) .. 93 Cession of a dividend [s 64EB(1)] .. 93 Amount paid for a borrowed share in a listed company [s 64EB(2)] .. 95 The purchase of a share cum dividend [s 64EB(3)] .. 97 Chapter 4 Exemption from Dividends tax and relief from double taxation (ss 64F, 64FA and 108).

8 99 Exemption from Dividends tax for Dividends other than Dividends comprising distribution of assets in specie [s 64F(1)] .. 99 A resident company [s 64F(1)(a)] .. 99 The government in the national, provincial or local sphere [s 64F(1)(b)] .. 101 A public benefit organisation [s 64F(1)(c)] .. 102 An environmental rehabilitation trust [s 64F(1)(d)] .. 102 Certain institutions, boards or bodies exempt from normal tax [s 64F(1)(e)] .. 103 Certain funds exempt from normal tax [s 64F(1)(f)] .. 103 Certain persons exempt from normal tax [s 64F(1)(g)].

9 104 A holder of shares in a registered micro business [s 64F(1)(h)] .. 106 A small business funding entity [s 64F(1)(i)] .. 106 dividend paid by a foreign company to a person that is not a resident [s 64F(1)(j)] .. 107 A portfolio of a collective investment scheme in securities (before 17 January 2019) [s 64F(1)(k)] .. 108 Any person to the extent that the dividend constitutes income of that person [s 64F(1)(l)] .. 109 Any person to the extent that the dividend was subject to STC [s 64F(1)(m)] .. 112 A fidelity or indemnity fund [s 64F(1)(n)].

10 113 A natural person in respect of a dividend paid on a tax-free investment [s 64F(1)(o)] .. 114 Comprehensive Guide to Dividends Tax (Issue 5) Exemption from Dividends tax for Dividends paid by a REIT or a controlled company Received or accrued before 1 January 2014 [s 64F(2)] .. 115 Exemption from and reduction of Dividends tax for Dividends in specie (s 64FA) .. 115 Exemption from Dividends tax for Dividends in specie [s 64FA(1)] .. 115 Reduced rate of Dividends tax [s 64FA(2)] .. 122 Period of validity of declarations and written undertakings [s 64FA(3)].