APPORTIONMENT OF VAT INPUT CLAIMS

A2bGenerally speaking, the VAT portion of expenditure incurred by a VAT vendor in carrying on its enterprise may be claimed back from SARS when the VAT vendor submits is VAT returns on a periodical basis. Typically, these input tax claims are set off against the output tax liability that the VAT vendor may have. However, it is also often the case that the total input tax claims for a certain period may exceed the total output tax amount payable, resulting in a net refund amount due to the vendor for that particular period.

Section 17 of the VAT Act, 89 of 1991, governs the circumstances and the extent to which a registered VAT vendor may claim input tax to be set off against the output tax due to SARS. It specifically addresses those circumstances when goods or services are acquired partly for use as part of the VAT vendor’s enterprise, and partly for purposes of making VAT exempt or personal supplies. In such instances section 17(1) limits the amount of input tax to be claimed to “… an amount which bears to the full amount of such tax or amount, as the case may be, the same ratio (as determined by the Commissioner in accordance with a ruling …) as the intended use of such goods or services in the course of making taxable supplies bears to the total intended use of such goods or services”.

The ruling referred to in section 17(1) (Binding General Ruling 16, Issue 2) sets out the formula as:

y = a / (a b c) x 100

Where:

“y” = the apportionment ratio/percentage;

“a” = the value of all taxable supplies (including deemed taxable supplies) made during the period;

“b” = the value of all exempt supplies made during the period; and

“c” = the sum of any other amounts not included in “a” or “b” in the formula, which were received or which accrued during the period (whether in respect of a supply or not).

In other words, the calculation referred to aims to limit the input tax deduction to the extent that the expenditure item in question is incurred in the furtherance of the VAT enterprise only.

The calculation assumes that expenditure would be incurred by the VAT vendor generally proportionate to the total taxable supplies made by the enterprise vis-à-vis non-taxable supplies. It may very well be that that this assumption is inapplicable based on the facts of the VAT vendor. For example, where a company extends interest bearing loans to customers (thus exempt supplies) while also providing consulting services (a standard rate taxable supply), the above formula may very well be applicable to apportion the portion of input tax claimable on e.g. rent paid on offices and used both to earn interest and consulting income. However, where expenditure is incurred e.g. towards training for employees linked directly to the consulting business only, said expenditure would not be partly incurred for making taxable supplies and partly not, but wholly for the furtherance of the VAT enterprise and thus rank wholly as a claim for input tax.

BGR16 itself provides for an alternative basis of apportionment to be applied if a more appropriate basis exists. It should be borne in mind that section 17(1) also only comes into play if there is an apportionment to be made whatsoever.

We have noted that SARS is applying BGR16 strictly as part of VAT audits in recent months and even if it may be inappropriate to do so where it is to the disadvantage of taxpayers. Such instances should be monitored and pointed out to your tax advisors when applicable to take up with the SARS auditors timeously.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

PAYE AND DIRECTORS’ (AND MEMBERS’) REMUNERATION FROM 1 MARCH 2017

A1bMany would have noted reports in the national media that the Taxation Laws Amendment Act, 16 of 2016, was signed into law by President Zuma on 11 January 2017. One of the many changes that the Act brings into effect is the repeal of paragraph 11C of the Fourth Schedule to the Income Tax Act, 58 of 1962. The provision is repealed effective 28 February 2017, which means that a new regime is introduced for deducting PAYE from directors’ remuneration effective for the 2018 tax year commencing on 1 March 2017.

The repeal introduces a new dispensation for the calculation of employers’ liability to pay over PAYE on a monthly basis as relates to directors’ remuneration paid. (It bears reminding at this stage that members of close corporations are deemed to be directors for PAYE purposes too, so the same would apply to members’ remuneration paid from 1 March 2017.) Ironically, the “new” dispensation that now applies to directors’ remuneration is the same regime that has throughout applied to “regular” employees, and these regimes can now be said to be aligned.

The purpose of paragraph 11C was to provide for the unique circumstances presented in directors’ remuneration, whereby actual remuneration for directors would often be inconsistent and amount to ad hoc payments decided and approved from time to time.[1] Policy was therefore to have PAYE calculated on a notional amount calculated generally with reference to the actual directors’ remuneration paid out in the previous year of assessment.

However, with the introduction of section 7B (dealing with “variable remuneration”[2]) in the Income Tax Act itself in 2013, policy in this regard appears to have changed with National Treasury. If “regular” employees need to account for PAYE on an ongoing basis on variable remuneration (also inconsistent) received, the need to differentiate between employees and directors would fall away and no policy consideration would exist whereby there should be differentiated between the PAYE treatment of variable remuneration received by employees vis-à-vis directors’ remuneration.

The reference to section 7B is only relevant to explain the policy change. It is important to appreciate though that directors’ remuneration will likely not form part of “variable remuneration” as defined in section 7B, and therefore PAYE cannot be accounted for merely on an actual payment basis. PAYE should be calculated and paid over as and when remuneration accrues to an employee (with the exception of variable remuneration), and likewise to directors now too. This would be as and when the employee or director becomes entitled to the remuneration, and not only when the amounts are actually received subsequently (as would be the case for variable remuneration covered by section 7B).

[1] See the now archived SARS Interpretation Note 5 (Issue 2)

[2] A term defined in section 7B of the Income Tax Act

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

BUDGET 2017: SUMMARY

A3bOn 22 February 2017, Finance Minister Pravin Gordhan delivered his 2017 budget speech. The Budget Speech mentioned that, while global growth is slightly better, geo-political and economic uncertainties have increased. Furthermore, SA’s low growth trajectory provides a major challenge for government and citizens.

Transformation was a strong theme, following on from President Jacob Zuma’s SONA. Gordhan said that SA needs to radically transform the economy so that it is more diversified, with more jobs and inclusivity in ownership and participation. We need to build the widest possible partnership to promote consensus and action on a programme for inclusive growth and transformation, according to the Minister.

However, many people’s minds were on tax since it is government’s aim to raise R28bn from higher taxes. The extra income will come from five sources:

  • R12.1bn, will accrue through “bracket creep”. Taxable income thresholds are usually adjusted to offset inflation; this year the adjustment will be minimal.
  • R4.4bn will be raised through an increase to 45% in the marginal tax rate on income above R1.5 million. This will affect about 100 000 taxpayers.
  • R6.8bn will be raised through the hike from 15% to 20% in the dividend withholding tax.
  • R3.2bn will be generated by a net 39c per litre increase in the fuel taxes.
  • R1.9bn will come from increased excise duties for alcohol and tobacco of between 6% and 10%.

Hereby the highlights of the tax related budget proposals that will affect you:

  • A new top personal income tax (PIT) rate of 45% for individuals with a taxable income above R1.5 million.
  • The tax rate on trusts (other than special trusts which are taxed at rates applicable to individuals) will increase from 41% to 45%.
  • An increase in the dividend withholding tax rate from 15% to 20%, effective 22 February 2017. Please contact us should you have dividends to declare.
  • The general fuel levy will increase by 30 cents per litre on 5 April 2017 and 9 cents per litre on the road accident fund levy. This is likely to have an inflationary effect on the economy given the knock on effect on the cost of transport which will translate into an increase in the cost of goods
    to the consumer.

Click here to download a summary of the 2017 Budget.

 

THE CALCULATION OF INTEREST DUE BETWEEN TAXPAYERS AND SARS

a4bThe Tax Administration Act (TAA) introduces general principles to be applied when calculating interest due to or due by SARS. The aim is to create a fairer, more uniform calculation of interest for both the taxpayers and SARS. As with most things in life, there are exceptions. This article will discuss the general interest rules and some of their exceptions.
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The following general concepts are laid down for the calculation of interest due between taxpayers and SARS:

  1. Interest is compensation for the lost opportunity to use money.
  2. Interest will be calculated daily on the outstanding balance and compounded monthly.
  3. Interest accrues from the effective payment date until the actual payment date of an outstanding amount. The effective payment date is the date when a tax becomes due and payable under a tax Act.

The following section explains four of the exceptions to the general concepts above:

Refunds due by SARS

If SARS must refund a taxpayer, interest on the refund is calculated from the date that SARS receives the excess amount which must be refunded to the date that SARS pays the refund to the taxpayer.

Where SARS sets off a refund against other tax owing by a taxpayer, the deemed date of payment of the refund is the set off date.

Provisional tax

In the case of the compulsory first provisional tax payment the effective date is the last business day of the sixth month after the end of the tax year. Interest will be calculated from the effective date, until the payment date or the effective date of the second provisional tax payment, whichever of the latter two comes first.

For the second provisional tax payment (also compulsory) the effective date is the last business day of the tax year. Interest is calculated from the effective payment date until the earlier of the actual payment date or the effective date (as prescribed) of the optional third provisional tax payment.

Delayed VAT refunds

No interest will be calculated on the refund for the period of the delay if the delay is caused by the taxpayer. The period of the delay is determined from the date that the taxpayer was required to submit information to SARS (e.g. bank details for the account into which SARS must pay the refund) until the date by which the taxpayer actually submitted the requested information.

Amounts refunded by mistake

If SARS refunds a taxpayer by mistake, the refund is deemed to be tax due and payable by the taxpayer. Interest will be calculated on the refund from the refund date until the date that the taxpayer pays the refund back to SARS.

A senior SARS official may remit imposed interest if he/she is satisfied that the interest was imposed as a result of circumstances beyond the taxpayer’s control. There are only three cases where circumstances might be regarded as beyond the control of the taxpayer: serious illness or accident, natural or man-made disaster, or civil disturbance or disruption of services.

The TA Act strives to provide for an equal number of days to be used for calculating any interest due between taxpayers and SARS, and to create an opportunity to apply the same rules for the calculation of interest on all the different types of tax administered by SARS.

Reference List:

  • Accessed on 21 June 2015:
  • SARS Short Guide to the Tax Administration Act, 2011 (Act No. 28 of 2011), Chapter12

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

DIRE PROVISIONAL TAX PENALTIES ON UNDERESTIMATION OF INCOME

a3bProvisional taxpayers are generally those taxpayers who earn income from sources other than a salary. In other words, PAYE is not deducted from these other sources of income on a monthly basis and paid over to SARS. As is the case with PAYE, provisional tax presents a cash flow mechanism to National Treasury through which to gather prepayments of an ultimate tax liability throughout a tax year on income which is not subject to the PAYE regime and which would otherwise only have been paid some time later when an annual income tax return is ultimately submitted. This can be as much as a year later.

To this end, provisional taxpayers are required to submit an estimate of their annual taxable income on a six-monthly basis. In the case of natural persons, provisional tax estimates are required to be submitted to SARS by way of a provisional tax return at the end of August each year, and again by the end of February. Legal persons similarly are required to submit estimates of taxable income at the end of the first 6 months of their financial years and again on the final day of the financial year.

For the first sixth-month estimate to be submitted an estimate is required to be made by the taxpayer of the estimated amount of taxable income that will be earned for the full year of assessment: half the amount of tax due on that estimated amount is required to be paid over to SARS at that date already, albeit after taking into account any amounts of PAYE also already deducted, where salary income is also earned. For the second provisional tax return, an estimate should again be submitted, and the tax on such estimate again be paid over (after taking into account any amounts of PAYE already deducted during the year as well as the first provisional tax payment already made).

The potential for manipulation by taxpayers is obvious and a legislated remedy is required to ensure that provisional taxpayers do not simply always submit an estimate of Rnil, thereby delaying the payment of amounts to SARS until the tax return for the applicable year itself is ultimately submitted. To this end, the Fourth Schedule to the Income Tax Act, 58 of 1962, makes provision for penalties to be levied where it appears at ultimate assessment date that a taxpayer has underestimated its taxable income for provisional tax purposes. For taxpayers earning more than R1 million in taxable income, taxpayers are allowed some leeway in that an estimate should at least have been 80% of the actual taxable income ultimately determined. This recognises that taxpayers are unlikely at year end to be able to accurately estimate their actual taxable income for the year already. However, if the estimated taxable income proves to be less than 80% of the actual taxable income, a 20% penalty is levied on the difference between the tax payable on 80% of the actual taxable income and the tax payable on the estimated amount returned by the taxpayer.

Similarly, taxpayers earning less than R1 million taxable income are subject to the same 20% penalty, but within a 90% margin of accuracy instead of 80%. These taxpayers are afforded additional relief though in that they are permitted to submit as an estimate a factor of their last assessed taxable income without running the risk of incurring a penalty, even if this amount ultimately is less than 90% of the actual taxable income determined.

Interestingly, no underestimation penalty exists for first provisional tax estimates, however SARS may query estimates submitted and require taxpayers to submit revised first provisional tax estimates. Where second provisional tax estimates are concerned though, taxpayers should take care in preparing estimated taxable incomes which are to be submitted for provisional tax purposes as failure to do so could lead to a significantly increased tax charge when the tax year is ultimately assessed by SARS.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

OFFSHORE COMPANIES AND DOING BUSINESS IN SOUTH AFRICA: A COMPANIES ACT PERSPECTIVE

a2bAccording to the most recent statistics released by the South African Revenue Service, South Africa remains a net importer of goods and services. Put differently, one could say that South Africans are more often clients in cross-border transactions than they would be the service provider. Many of our clients operate in this space, including foreign incorporated companies which are doing business in South Africa. This article is aimed at those specific clients of ours: those clients doing business in South Africa through companies incorporated outside of South Africa.

Section 23 of the Companies Act, 71 of 2008, regulates when foreign companies are required to register as “external companies” in South Africa. In terms of that section an external company must register with CIPC within 20 business days after it first begins to conduct business, or non-profit activities, in South Africa. The question is then when will the company in question be considered to be conducting business here?

A foreign company is, by virtue of the provisions of the Companies Act, regarded as conducting business in South Africa if either it is a party to at least one employment contract in South Africa, or if it is conducting such activities for a 6-month period “as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within the Republic.” (section 23(2)(b)) Therefore, having even one employee in South Africa requires a company to register.

Certain exclusions may apply and where the Act is explicit that certain activities should not be considered to establish sufficient enough a presence in South Africa to deem the company to be one conducting business here (and therefore required to register with the relevant authorities). However, these exclusions are illuminating in the sense that it presents a rather low bar of activity (such as having shareholders’ meetings here or maintaining a bank account), therefore potentially hinting that the bar for being considered to conduct business in South Africa and therefore required to register as an external company may not be very high.

In terms of section 23, any foreign company required to register as an external company in South Africa must maintain an office in this country. Moreover, failure to adhere to the requisite registration requirements may ultimately lead to a company being notified that it is no longer allowed to carry on business operations in South Africa. Although this article does not consider the implications of registering as external company, we also wish to alert affected clients thereto that this legislative registration requirement may have certain tax and exchange control related implications inherent to them, and on which advice should be taken to manage these requirements in a sensible and responsible manner.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TAX IMPLICATIONS OF INTERNATIONAL BRANCHES

a1bIrrespective of whether a South African company is expanding its business offshore, or whether international businesses set up shop in South Africa, companies trading internationally are often confronted with the complex tax implications for doing so. This article explores the tax implications linked to international branches of a company specifically; it does not consider the scenario where a corporate group would operate through separate companies set up in each of the various jurisdictions in which it operates. With a branch, it is contemplated therefore that a company tax resident in one country carries on operations in another country either by selling trading stock in that other country or rendering services there.

Two main tax implications arise for trading activities conducted through international branches, these being that so-called “permanent establishments” are being created, and secondly that transfer pricing principles would apply also to these permanent establishments.

Dependent on the level of activities involved, for income tax purposes where a non-tax resident company carries on business in another country that company will be considered to have a branch in that other country (known as a “permanent establishment”). Typically, permanent establishments are treated as separate taxpayers by the countries in which these are situated, thus able to earn taxable income of its own in that country. This may potentially give rise to double taxation. For example, A (Pty) Ltd is tax resident in country X, and carries on a business in country Y through a branch there and with sufficient activities to constitute a “permanent establishment”. By virtue of the level of activities in Y, that country will seek to tax the profits of the branch in that country. However, A is a tax resident in country X and which would likewise want to tax all the income of its residents. In this instance, double taxation will arise, and A will be taxed in both countries X and Y on the income of its branch in Y, unless there is a double tax treaty in place (and which will typically allocate taxing rights to country Y exclusively).

Whether a permanent establishment exists or not therefore may involve a matter of planning: dependent on the various income tax rates in countries X and Y above, it may be beneficial for A to ensure that sufficient substance is present in country Y to have a permanent establishment recognised in that country if that country for example has more beneficial tax rates than country X.

The further tax consequence linked to permanent establishments relates to that of transfer pricing. In its simplest form transfer pricing would involve ensuring the cross-border charges between related parties are conducted on an arm’s length basis. Transfer pricing adjustments would kick in where a company in a higher income tax jurisdiction were to inflate its deductible expenditure by paying amounts over to a related tax resident situated in another country. In this manner, profits are artificially shifted within the same group to jurisdictions with the lowest tax rates.

The same abuse could potentially apply where permanent establishments are concerned. Take the example of A above carrying on business through a branch in country Y. Transfer pricing legislation (contained in section 31 of the South African Income Tax Act, 58 of 1962) dictates that an arm’s length amount of expenditure be allocated to the branch – no more and no less. Where for example therefore a group company of A would lend money to A’s branch in country X, one would need to interrogate what the interest rate would have been on the debt had a third party provided the debt financing. If the interest payable on the loan between the group company and branch be anything else, transfer pricing legislation would become applicable to adjust any interest paid (or not paid) to arm’s length values.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

REMOVING DIRECTORS OF A COMPANY

a4bThe Companies Act, 71 of 2008, requires that the business and affairs of any company be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the company’s Memorandum of Incorporation provides otherwise (section 66(1)). The Companies Act further requires that a company must have at least one director (section 66(2)), and further that only natural persons may serve in that capacity (section 69(7)(a)).

Those individuals occupying the position of directors of a company are therefore responsible for managing the affairs of the company and they do so as custodians on the shareholders behalf. It should be remembered that the directors do not own the company: the company rather is owned by the shareholders and the directors serve therefore to promote the interests of the company, and indirectly therefore the economic interests of the shareholders.

Quite often, in the case of private companies, the directors and shareholders may be the same individuals. However, where the directors have no or limited shareholding interest in the company itself, it may happen that the shareholders may wish to move to have certain directors removed and replaced on the company’s board if e.g. the company’s financial performance or operations otherwise are not satisfactorily conducted according to the shareholders’ liking.

Naturally, a director may be requested to resign under amicable circumstances. However, where a director refuses to resign (and may perhaps have the backing of other shareholders), the question becomes what remedies the aggrieved shareholders still have? It is possible to have these matters regulated in terms of the company’s Memorandum of Incorporation specifically to dictate under which circumstances a director may be removed from the board of a company. It could also be agreed with the director initially by way of a clause in the appointment contract.

Irrespective of whether the Memorandum of Incorporation or an appointment contract addresses the matter specifically, a director may always be removed by way of a majority vote at an ordinary shareholders’ meeting (section 77(1)). Before the shareholders of a company may consider such a resolution though, the director concerned must be given notice of the meeting and the resolution, and be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote (section 77(2)). In terms of procedures not entirely different from that as applied to shareholders, the directors may among themselves too resolve to remove a director from the board of a company (sections 77(3) & (4)).

It is important for directors to realise that they serve at the pleasure of shareholders. It is likewise necessary for shareholders to know that they have remedies against directors who do not deliver on their mandate, and that keeping directors in check amounts to good corporate governance.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

EXPLAINING ZERO RATED VAT

a3bValue-Added Tax, or VAT, is currently typically charged at 14% on all taxable supplies of goods or services rendered by registered VAT vendors. Taxable supplies exclude exempt supplies, such as providing financial services, residential accommodation or educational services (see section 12 of the Value-Added Tax Act, 89 of 1991). Where a VAT vendor makes exempt supplies, it may not levy VAT on invoices rendered for such goods or services provided to the vendor’s clients.

Taxable supplies include though the supply of goods or services at a VAT rate of zero percent. In other words, where a VAT vendor were to supply zero rated goods or services, it will levy VAT on the invoice at 0%, and not the standard rate of 14%. This may appear nonsensical at first, especially considering from an economic perspective when compared to exempt supplies: effectively no VAT is charged on an invoice whether the supply by the VAT vendor is exempt from VAT or charged at a rate of zero percent.

The significance lies therein that the exempt supplies are exempt from VAT altogether, while zero rated supplies still qualify as “taxable supplies” as defined in the VAT Act. VAT vendors may therefore claim input tax for expenditure incurred in order to render taxable supplies, even if zero rated. This will not be the case for VAT exempt supplies.

Put simply therefore: input tax may be claimed against expenditure incurred to the extent that the expenditure is used ultimately to make either zero or standard rated supplies. To the extent that the expenditure is applied to make VAT exempt supplies, no input VAT may be claimed.

To use an example: imagine a VAT vendor, A (Pty) Ltd, which renders services to an Australian based firm (and which is zero rated in terms of section 11(2)(l) of the VAT Act). The invoice to the Australian firm amounts to R100 VAT at zero percent (therefore R100). To render the services, A makes use of a subcontractor which invoices it an amount of R50 VAT at 14% (therefore R57). To the extent that the services of the subcontractor is used to further the enterprise of A in making taxable supplies (even if at zero percent) to the Australian customer, A is able to claim an input tax amount of R7, thereby realising a profit of R50.

Had the services rendered by A amounted to exempt supplies for VAT purposes though in terms of section 12 of the VAT Act (such as supplying financial services for example), A would have still only invoiced its customer an amount of R100, yet unable to claim the input tax amount of R7 on the basis that subcontractor fee is no longer paid in the furtherance of A’s enterprise in making taxable supplies. In this scenario where exempt supplies are made, a profit of only R43 would have been made.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

DIVIDENDS TAX COMPLIANCE

a2bOur clients will know that the dividends tax replaced the old Secondary Tax on Companies (“STC”) effectively 1 April 2012 already. Briefly, the STC was a tax on companies and calculated as a factor of dividends declared by that company. The regime was somewhat out of touch with international trends though (which also gave rise to certain anomalies when South Africa negotiated double tax agreements with other countries): the international norm is rather what we have in South Africa today too, being a tax on shareholders (as opposed to the dividend declaring company) and which tax is withheld from payment of dividends to the shareholders. The dividends tax is levied at 15%. By way of an example therefore, if a person (not exempt from the dividends tax) were to receive R100 in dividends from a South African company, that company will only pay R85 to the shareholder, and R15 would be withheld and paid to SARS on the shareholder’s behalf.

Although in our experience most of our clients exhibit an understanding of how the dividends tax regime operates, many of our corporate clients appear to be unaware of their filing obligations which go hand-in-hand with both dividend declarations as well as dividends received. Companies are required to file a dividend tax return when declaring a dividend (section 64K(1A)), but persons are also required to file a return if they receive a dividend exempt from the dividends tax. Since generally all South African tax resident companies are exempt from the dividends tax, this will effectively translate into South African tax resident companies having to file dividends tax returns for all South African dividends which they receive too.

The necessary dividends tax returns (the SARS DTR01 and DTR02 forms) are required to be filed by the end of the month following the month during which the relevant dividend was paid/received. The dividends tax payment (where relevant) should accompany said return.

Therefore, even if a company only pays and receives dividends none of which are subject to the dividends tax the exempt taxpayer is still obliged to file the requisite returns. The returns are also not the only compliance requirement to be observed: where a shareholder relies on a double tax agreement in terms of which a reduced dividends tax rate is to be applied (as opposed to the statutorily imposed 15% applicable domestically), or that person is exempt from the dividends tax altogether, that shareholder must inform the company of this status by way of a declaration made, together with an undertaking that the shareholder will inform the company should the status of the aforementioned change in future. In the absence of such a declaration, the company must still withhold dividends tax even if the shareholder is objectively speaking exempt from the dividends tax.

As one will no doubt realise, non-observation of the relevant dividends tax compliance requirements – even if they do appear to be somewhat trivial and admittedly not practically heavily policed by SARS – one ignores these requirements at one’s own peril. In this instance non-compliance may have a significant impact if a taxpayer is upon investigation found to be wanting in this regard.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)