Our clients will know that the dividends tax replaced the old Secondary Tax on Companies (“STC”) effectively 1 April 2012 already. Briefly, the STC was a tax on companies and calculated as a factor of dividends declared by that company. The regime was somewhat out of touch with international trends though (which also gave rise to certain anomalies when South Africa negotiated double tax agreements with other countries): the international norm is rather what we have in South Africa today too, being a tax on shareholders (as opposed to the dividend declaring company) and which tax is withheld from payment of dividends to the shareholders. The dividends tax is levied at 15%. By way of an example therefore, if a person (not exempt from the dividends tax) were to receive R100 in dividends from a South African company, that company will only pay R85 to the shareholder, and R15 would be withheld and paid to SARS on the shareholder’s behalf.
Although in our experience most of our clients exhibit an understanding of how the dividends tax regime operates, many of our corporate clients appear to be unaware of their filing obligations which go hand-in-hand with both dividend declarations as well as dividends received. Companies are required to file a dividend tax return when declaring a dividend (section 64K(1A)), but persons are also required to file a return if they receive a dividend exempt from the dividends tax. Since generally all South African tax resident companies are exempt from the dividends tax, this will effectively translate into South African tax resident companies having to file dividends tax returns for all South African dividends which they receive too.
The necessary dividends tax returns (the SARS DTR01 and DTR02 forms) are required to be filed by the end of the month following the month during which the relevant dividend was paid/received. The dividends tax payment (where relevant) should accompany said return.
Therefore, even if a company only pays and receives dividends none of which are subject to the dividends tax the exempt taxpayer is still obliged to file the requisite returns. The returns are also not the only compliance requirement to be observed: where a shareholder relies on a double tax agreement in terms of which a reduced dividends tax rate is to be applied (as opposed to the statutorily imposed 15% applicable domestically), or that person is exempt from the dividends tax altogether, that shareholder must inform the company of this status by way of a declaration made, together with an undertaking that the shareholder will inform the company should the status of the aforementioned change in future. In the absence of such a declaration, the company must still withhold dividends tax even if the shareholder is objectively speaking exempt from the dividends tax.
As one will no doubt realise, non-observation of the relevant dividends tax compliance requirements – even if they do appear to be somewhat trivial and admittedly not practically heavily policed by SARS – one ignores these requirements at one’s own peril. In this instance non-compliance may have a significant impact if a taxpayer is upon investigation found to be wanting in this regard.