What is Dividend Withholding Tax?
Dividend Withholding Tax (DWT) is tax that shareholders are liable for when a company pays out dividends. A dividend is any payment by a company to a shareholder in respect of the shares held in that company. DWT replaced Secondary Tax on Companies and one of the changes introduced is that the shareholder is liable for tax. In the unit trust world this means that our investors are indirectly invested in the companies in which we hold shares. When a company pays out a dividend to us, we use it to cover expenses incurred and pay the remaining balance to the investor either in the form of additional units or as a cash pay-out where applicable. We are now also obliged to withhold any tax payable and pay out the net amount after tax to the investor. Dividends are currently taxed at a rate of 15%.
Who is liable for Dividend Withholding Tax?
The owner of the share is liable for any tax on the dividend. In practice, we will withhold tax payable on dividends declared and pay out the remainder to our investors or re-invest depending on the option elected. Ultimately, however, it is the investor who is liable for payment of DWT.
Natural persons who are resident in South Africa, certain trusts and any foreign entity or foreign individuals are liable for DWT. Foreign individuals may qualify for a reduced tax rate for DWT depending on whether or not there is a double taxation agreement between South Africa and their country of residence.
All other shareholders are exempt from DWT. Examples of exempt entities are:
- local companies
- any of the three tiers of government
- approved public benefit organisations (section 30(3)of the Act)
- mining rehabilitation trusts (section 37A of the Act)
- persons referred to in section 10(1)(cA) of the Act
- pension, provident, preservation, retirement annuity, beneficiary and benefit funds (section 10(1)(d)(i) and (ii) of the Act)
- persons referred to in section 10(1)(t) of the Act (CSIR, SANRAL, etc)
- shareholders in a registered micro businesses (6th Schedule of the Act) insofar as the dividend does not exceed R200,000 per annum
- non-resident beneficial owners of dividends received from SA listed non-resident companies; portfolio of a collective investment scheme in securities
- any person insofar as the dividend constitutes income of that person
- any person insofar as the dividend was subject to STC
- and fidelity or indemnity funds (section 10(1)(d)(iii))
What do I need to do in order to qualify for an exemption/reduced rate for DWT?
You would need to complete either one of two forms. We currently have a form available for investors who may qualify for a reduced DWT rate as well as a form for investors who are exempt from paying DWT. If neither of these forms are completed at new business stage then the standard DWT rate of 15% will apply.
What happens if I failed to complete either form mentioned above?
If dividend tax was withheld incorrectly then you need to complete the correct declaration as soon as possible. A refund is possible but may take time to process. An investor has three years in which to submit a late declaration after they have received payment.
Disclaimer: The information contained in this document is not intended to be legal, tax, or other professional advice. Whilst Nedgroup Investments has taken due care to ensure that the content of this document is relevant and accurate, no representation, warranty or undertaking, be it expressly or impliedly, is given regarding the accuracy, completeness, or usefulness of any information disclosed herein. Any reliance upon any content herein is done so at your sole risk.