How are dividends taxed?
Dividends withholding tax is now 20%, but when is it charged or not charged?
In principle, DWT is withheld by the company paying the dividend, then paid over to SARS by the end of the month following that in which the dividend was declared or paid. So if the dividend was R100 000, the shareholder gets R80 000 and SARS gets R20 000.
If the shareholder is not a South Afrcian resident (and provided his/her share certificate was stamped “Non-resident”), then we have to go to the Double Taxation Agreement between the shareholder’s country of residence and South Africa. Depending upon whether or not the dividend will be taxed in the shareholder’s country of residence, our withholding tax will be somewhere between 5% (if taxed) and the full 20% (if not taxed).
If the shareholder is an SA resident company, then no DWT is deducted, it only kicks in when the dividend leaves the corporate structure.
Then there are deemed dividends. The one most likely to affect you deems as a dividend the difference in the interest charged by your company on a loan to you (i.e. a debit loan account) and the interest at the official rate (1% over the repo rate which is currently 6,5%). The DWT on an interest free loan of R100 000 is therefore 20% x 7.5% x R100 000, which is only R1 500. The catch is that each year, there’s a similar deemed dividend and more DWT to pay.