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Dividend's tax will encourage foreign investors
16 March 2009
The introduction of a dividends tax is likely to make SA a more attractive foreign investment destination.
While this may simplify tax from the perspective of foreign investors, and go some way to attracting capital inflow, for local companies it introduces a number of complexities, said Ernest Mazansky, head of Werksmans’ tax practice.
The effective date of the new dividends tax is yet to be determined by Finance Minister Trevor Manuel.
Speaking at a seminar in Johannesburg recently, Mazansky said the major difference lay in who paid the tax. “Conceptually, we have moved away from a company tax to an effective tax on shareholders payable on the distribution of dividends by a company.”
Of interest to local companies was that the South African Revenue Service had acceded to pressure to give credit for the many millions of rands in secondary tax on companies (STC) credits that were on the books of South African companies, Mazansky said. “This was a sensitive issue for companies that had already paid the 10% STC … now their shareholders will have to pay another 10% dividends tax. The tax amendment now allows companies in effect to offset the amount of STC paid, as a credit against dividends tax for a period of five years,” he said.
However, they had to notify shareholders of the deduction. Failure to do so would result in their having to pay double tax, Mazansky said. Furthermore, if not all shareholders were notified, then companies could not use the STC credit as far as those shareholders were concerned. The new tax also extended the principle of directors’ liability , Mazansky said.
The dividends tax rate would remain at 10%, as was the case with STC, and not being a company tax but a dividends tax payable by the shareholder, the effective South African company tax rate was now simplified and fixed at 28%. Mazansky said this placed SA’s company tax rate on a par with international practice, was familiar to international investors and would assist in the creation of tax certainty for foreigners.
Under the new system, South African shareholders would pay a slightly higher effective rate of tax than under STC because the dividend was now declared exclusive of any dividends tax.
Sashia Temkin, www.businessday.co.za
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