Dividends tax is a tax on shareholders when dividends are paid to them. It is a tax that is payable by the beneficial owner of the dividend but withheld by the company paying the dividend at a rate of 20%. The company withholding the dividend must pay the tax on or before the last day of the month following the month in which the dividend was paid.

A company must withhold dividends tax at a reduced rate if the person to whom the payment is made, has submitted a declaration in the prescribed form that the divided is subject to a reduced rate because of a double taxation agreement (DTA).

South Africa has entered into DTAs with countries around the world. Many of these DTAs reduce the dividends tax payable by a non-resident in South Africa to less than 20%. For example, the dividends tax for natural persons is reduced for residents of:

• Australia, United states, Canada, Namibia, Botswana, and Portugal to 15%; and
• Ireland, Netherlands, Singapore, Mauritius, United Arab Emirates, and United Kingdom to 10%.

The South African Revenue Service (SARS) published a Binding Private Ruling (BPR 377) on 8 September 2022 on the withholding of dividends tax at a reduced rate. While a BPR is only binding between the applicant and SARS and does not constitute a practice generally prevailing, it does give an indication on how SARS will treat similar matters.

In BPR 377 the applicant, a resident company, intended to pay dividends in the 2023 tax year, to its shareholder, a resident trust. The trust deed gave the trustees a discretion to award income and capital to its beneficiaries with no limitation on when the discretion could be exercised. The beneficiaries of the trust were residents of another tax jurisdiction. 

On a date before the declaration of the dividend the trustees were to pass a resolution vesting the dividends declared by the company in that year, in the beneficiaries. The tax jurisdiction where the beneficiaries were resident had a DTA with South Africa reducing the withholding tax rate. SARS ruled that the company could withhold the tax paid to the non-resident beneficiaries of the trust at the reduced rate.

It would therefore seem that foreign beneficiaries of South African trusts, can benefit from a DTAs reduced dividend tax rate, provided the trustees vest the dividend in the beneficiaries in the same tax year as the dividend is declared. 

Telephone: +27 31 570 5496, Email: graeme.palmer@gb.co.za