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Which dividends are exempt from Dividend Withholding Tax?

There are certain dividends, which don’t attract dividends tax, provided some conditions are met. However, lets first take a step back and clarify what dividends tax is, and how it is calculated.

Dividends tax is a withholding tax, which is levied at 20% on dividend distributions. It is the obligation of the company paying the dividend to withhold the tax and pay it over to SARS. 

Depending on the nature or status of the dividend recipient (i.e. the party who receives the dividend) the dividend could be exempt from dividends tax.  However, it is up to the dividend recipient to complete the required forms and submit these to the company, which is distributing the dividend, prior to payment.

The two forms include:

  • Declaration by Beneficiary Owner
  • Undertaking by Beneficiary Owner

Please note, SARS hasn’t issued the actual form to be used, but has prescribed the required wording and minimum information to be provided. The company paying the dividend, has to prepare its own forms which should incorporate at least the prescribed wording and required information as provided in the  Business Requirements Specification  Annexure G.

If these forms are not completed by the time the dividend payment is due, then the Company will be required to withhold tax from the dividend pay-out at the full rate of 20%. 

The types of entities, which are exempt from paying dividends tax, include the following:

  • Local South African registered companies
  • Any 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.

These types of entities, may therefore qualify for the dividend withholding tax exemption provided they complete the required forms and submit them in time to the company, which is paying the dividend. If they fail to do so, they can try to claim back the dividend tax from the company, which paid them the dividend, provided they complete the required forms within the next three years after the dividend payment.

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