Dividends tax & other withholding taxes
Ide Louw The dividend withholding tax is set to replace the current secondary tax (STC) on companies regime with effect from 1 April 2012. Under the current regime, the tax charge is 10%, and is imposed on the company when it declares a dividend. The dividends tax (imposed on the shareholder) was also set to be introduced at a rate of 10%. However, this tax will now be increased to 15%, reason being that the estimated net loss of the switch over from STC to dividends tax which will amount to R1.9 billion must be mitigated. The STC credits which would have been available to reduce a dividends tax liability, is also reduced from 5 to 3 years.
The 15% dividends tax may impact South African individuals, trusts, and non-residents, the latter where there is no or limited protection under a double tax treaty. The increased tax may irk foreign corporate investors, especially if they cannot access a reduced tax under a treaty, whereas their South African counterparts will not be subject to the same tax.
Government further proposes that all procedures and rates applicable to withholding taxes must be streamlined, and a uniform rate of 15% for other withholding taxes (such as interest) is proposed.
