Analysing tax exemption for dividends

Dividends are a valuable part of many shareholders’ income, but even though they are exempt from regular income tax, it does not mean that they are completely exempt from tax.

A dividend can be defined as any local or foreign dividend paid by a resident company of South Africa or a foreign country, provided that the foreign dividend is paid as a listed share and to the extent that the foreign dividend does not consist of an asset in specie. Dividends that South African tax residents receive are generally exempt from income tax. However, the mere fact that these dividends are exempt from income tax does not necessarily mean that they are not subject to tax.

Dividends tax is imposed at a rate of 20% on all dividends that are declared and paid. The beneficial owner of a dividend, typically the shareholder, is liable for dividends tax in most cases. However, should the dividend in question consist of an asset in specie, the liability falls on the company paying the dividend and not on the beneficial owner. There are instances in which dividends tax will not be levied, specifically where the beneficial owner of the dividend is either a South African resident company, a South African retirement fund, or any other prescribed exempt person.

Dividends tax operates as a withholding tax. The company that declares the taxable dividend must withhold and pay an amount directly over to SARS on behalf of the recipient taxpayer. Where a regulated intermediary pays a dividend, it is responsible for withholding the applicable dividends tax. The Income Tax Act, No. 58 of 1962 (the Act) caters for several instances in which a dividend declaring company is freed from the obligation to withhold dividends tax.

The dividend declaring company would not have to withhold the dividends tax from the payment of a dividend provided that the dividends are declared to identified persons. These instances include the following:

  • Where the person to whom the payment is made has, before the dividend payment, submitted to the dividend declaring company in the prescribed form that the dividend is exempt from dividends tax in terms of section 64F of the Act;
  • A written undertaking by the beneficial owner in the prescribed form in which the declaring company is informed that the beneficial owner changed or the circumstances affecting the exemption applicable to the beneficial owner changed;
  • Where the beneficial owner forms part of the same group of companies as the dividend declaring company; and
  • Where the payment is made to an intermediary.

Irrespective of the instances in which a dividend declaring company is freed from the obligation to withhold dividends tax, it is important to note that withholding tax is more likely than not to be reduced should a double taxation agreement find application.

If you want to find out more about dividends tax and how it may affect you, do not hesitate to contact one of our expert advisers for further assistance.

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)




We use cookies to improve your experience on our website. By continuing to browse, you agree to our use of cookies

IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.