Individuals receiving dividends from South African firms are normally exempt from income tax, but the entities providing the dividends to the individuals must withhold a 20% dividends tax.
Who is exempt from dividends tax in South Africa?
In most cases, dividends received by a South African taxpayer are tax-free. However, dividends earned from so-called REITs (some of the largest property-owning corporations listed on the JSE) are excluded (such as for example Redefine Properties Ltd). REIT dividends are not tax-free and will be subject to income tax in the hands of the beneficiary taxpayer. (See Income Tax Act, 58 of 1962, section 10(1)(k)(i).)
However, just because non-REIT dividends aren’t subject to income tax doesn’t mean they aren’t taxed at all.
Dividends are still subject to the dividends tax, which is a 20% tax on dividends received that is taxed in the hands of the receiving taxpayer.
The tax also functions as a withholding tax, meaning that the tax is withheld by the firm declaring the dividend and paid directly to SARS on behalf of the taxpayer.
Consider the case where a corporation declares a R100 dividend to a shareholder.
Only R80 of this sum is paid to the shareholder, with the remaining R20 going to SARS on behalf of the taxpayer.
There are, however, a number of kinds of people that are exempt from the dividends tax, in which case the dividend declaring corporation is not required to withhold dividends tax if dividends are paid to these individuals.
South African corporations benefit from the most prevalent of these exemptions: they are exempt from dividend tax.
In other words, if a South African company is the dividend recipient in the case above, no dividend tax would need to be withheld and paid to SARS.
Furthermore, the payout should be exempt from income tax.
The exempt entity, such as a corporation-type shareholder, must advise the investee (or dividend declaring) company that it is an exempt entity in order for the dividend tax exemption to apply explicitly. In other words, until the declaring firm is advised differently, it is assumed that a shareholder is not free from dividend tax.
As a result, non-exempt entities (such as trusts or individuals) may find it advantageous to hold their share holdings through a wholly-owned corporation.
Aside from the additional benefits of using a privately owned company to hold shares in companies (such as securing these from attachment by the individual/current trust’s or contingent creditors, or ensuring more efficient management of a portfolio of investments), a company also provides the opportunity to receive investment returns in the form of dividends in a more tax-efficient manner.
Dividends received by a South African firm are unlikely to be taxed, either in terms of revenue or dividends. Dividend tax implications are not the only issue to consider before making such a decision, and expert assistance is best acquired from a professional to ensure that the proper structuring decisions are taken.
This page is intended to be used as a general resource and should not be construed as professional advice. No responsibility can be assumed for any errors or omissions, as well as any loss or damage resulting from the use of this information. For precise and detailed advice, always contact your financial adviser.
How much tax do I have to pay on dividends?
Yes, the amount paid as interest on any money borrowed to invest in shares or mutual funds is deductible in the case of dividends. The amount of interest that can be deducted is restricted to 20% of the gross dividend income received. Any additional expense, such as commission or remuneration paid to a banker or other person to realize a dividend on the taxpayer’s behalf, is not deductible. Dividends received from both domestic and international corporations are subject to the restrictions.
Yes, the amount paid as interest on any money borrowed to invest in shares or mutual funds is deductible in the case of dividends.
The amount of interest that can be deducted is restricted to 20% of the gross dividend income received. Any additional expense, such as commission or remuneration paid to a banker or other person to realize a dividend on the taxpayer’s behalf, is not deductible. Dividends received from both domestic and international corporations are subject to the restrictions.
In India, a firm must pay a 15% dividend distribution tax if it has declared, distributed, or paid any cash as a dividend. The provisions of DDT were first included in the Finance Act of 1997.
The tax is only payable by a domestic corporation. Domestic enterprises must pay the tax even if they are not required to pay any on their earnings. The DDT will be phased out on April 1, 2020.
Who is exempt from dividends tax?
There are several dividends that are exempt from dividend tax if specific conditions are met. Let’s take a step back and define what dividends tax is and how it’s computed first.
Dividends tax is a withholding tax on dividend distributions that is applied at a rate of 20%. It is the corporation paying the dividend’s responsibility to withhold the tax and pay it to SARS.
The dividend may be free from dividend tax depending on the type or position of the dividend recipient (i.e. the person who gets the dividend).
However, it is the responsibility of the dividend receiver to complete and submit the relevant documents to the corporation that is paying the dividend prior to payment.
SARS has dictated the needed phrasing and minimal information to be submitted, but has not published the actual form to be used. The corporation distributing the dividend must create its own forms, which must include at least the words and information specified in the Business Requirements Specification. Appendix G
If these papers are not completed by the time the dividend payment is due, the Company will have to withhold tax at the full amount of 20% from the dividend payment.
The following are examples of entities that are exempt from paying dividends tax:
- Pension, provident, preservation, retirement annuity, beneficiary, and benefit funds are all examples of these types of funds.
- dividends received from foreign companies listed on the Johannesburg Stock Exchange by non-residents
- For a tax-free savings account, a natural person for a dividend paid on or after March 1, 2015.
As a result, these organizations may be eligible for the dividend withholding tax exemption if they complete and submit the relevant paperwork to the firm paying the dividend on time. If they fail to do so, they may be able to recover the dividend tax from the firm that gave them the dividend if they fill out the necessary documents within three years of receiving the payout.
How does dividends work in South Africa?
Dividends can be received in a variety of ways in South Africa, but the most common is cash, which is put into shareholders’ investment accounts. If a firm declares a R0.30 dividend and you hold 100 shares, for example, you will receive R30.00.
Dividends are more likely to be paid by established enterprises with significant cash flows. Many investors prefer the income that dividends provide, and they typically regard them as a sign of health and positive earnings forecasts in the future.
Is dividend income taxable income?
Dividend income is taxed in most cases. This is assuming it is not distributed in a retirement account such as an IRA, 401(k), or similar account, in which case it would be tax-free. Here are two common examples of taxable dividend income:
It would be taxable dividend income if you owned a stock, such as ExxonMobil, and received a quarterly dividend (in cash or even if it was reinvested).
Let’s imagine you own shares in a mutual fund that pays out dividends every month. These dividends would be taxable dividend income as well.
Both of these scenarios are applicable to dividends earned in non-retirement accounts.
How is dividend calculated?
The total of a company’s declared dividends issued for each ordinary share outstanding is known as dividend per share (DPS). The figure is produced by dividing the total dividends paid out by a company, including interim dividends, by the number of outstanding ordinary shares issued over a period of time, usually a year.
The DPS of a corporation is frequently calculated using the most recent quarter’s dividend, which is also used to calculate the dividend yield.
Do dividends tax?
A Philippine business can distribute tax-free stock dividends to all shareholders proportionately. However, the subsequent cancellation or redemption of such stocks, to the extent that it represents a distribution of earnings, will be taxable.
How much in dividends can I pay myself?
If your company is organized as a limited liability company, paying yourself dividends in addition to a salary is usually the most tax-efficient way to take money out. We’ll discuss how often you can collect dividends and how the procedure works to help you manage the legal requirements of paying yourself from your business.
What is a dividend?
A dividend is a percentage of a company’s profit that is distributed to its shareholders. After all taxes, expenditures, and liabilities have been paid, profit is essentially what is left over in the business. This leftover money, often known as’retained profit,’ can build up over time. Watch the video below to learn more about using dividends to pay yourself from your limited company.
When should a company pay dividends?
Dividends are normally paid quarterly in the United States, while some corporations pay them monthly or semiannually. Each dividend must be approved by the board of directors of the corporation. The corporation will then announce when the dividend will be paid, how much it will be, and when it will go ex-dividend.
What is dividend example?
The dividend is the amount or number to be shared in division. The entire that is to be divided into parts is referred to as a dividend. Twelve candies, for example, are to be distributed among three youngsters. The dividend is 12.
Does every company pay dividends?
Dividends are distributed to shareholders in proportion to the amount of shares they own.
A firm may, for example, declare a dividend of Rs 10 per share for a set period of time. You would receive Rs 10,000 in dividends if you owned 1,000 shares during the time period. Some of the greatest dividend-paying stocks give out dividends on a regular basis.
There are two things regarding dividends you should keep in mind.
- Discretionary: Dividends are paid at the discretion of the shareholder. Companies are not required by law to give you dividends. It is in accordance with their wishes.
- Others: Dividends are usually paid from profits. However, if there is sufficient reserve excess, a loss-making corporation can pay dividends.
Why are dividends taxed at a lower rate?
Dividends are a fantastic way to supplement your income. They’re particularly important in retirement because they provide a steady and (relatively) predictable source of income. You will, however, have to pay taxes on any dividends you receive. The dividend tax rate you pay will be determined by the type of dividends you receive. Non-qualified dividends are taxed at the same rate as ordinary income. Because qualified dividends are taxed as capital gains, they are subject to lower dividend tax rates.
