Secondary Tax on Companies (STC) was replaced by the new tax on dividends (Dividend Withholding Tax or DWT) with effect from 1 April 2012.
DWT will be levied at a rate of 15% and will in general apply on all dividends declared and paid by South African resident companies, as well as non-resident companies who are listed on the JSE Limited.
The reason for the change from STC to DWT is to align South Africa with international standards and best practice, which dictates that the shareholders are normally liable for tax on dividends and not the company paying the dividend.
Due to the perception that STC increased the South African corporate tax rate, South Africa was viewed as a less attractive destination for foreign investors.
Under the STC system, the company declaring the dividend was responsible for paying tax on dividends to SARS before distributing them to the investor.
Under the DWT system, investors will be responsible for paying tax to SARS via an “agent” who will deduct and pay the dividend to SARS on the investors behalf.
In terms of the tax legislation, unit trust management companies have been appointed as withholding agents.
The Unit Trust Management Company will receive the full dividends, triggering the dividend withholding tax on distribution to investors.
The role of the unit trust company is to deduct the tax owed for immediate payment to SARS.
Should you have any queries in this regard, please do not hesitate to contact us.