The importance of determining when a dividend is “due and payable”
Author: Annalie Pinch and David Marais
Section 64E(1) of the South African Income Tax Act, 1962 (the “Act”) provides that dividends tax must be levied at a rate of 20% of the amount of any dividend paid by any company, other than a headquarter company.
In terms of section 64EA(a) of the Act, the beneficial owner of a cash dividend is liable for dividends tax in respect of that dividend. However, in terms of section 64F(1), a cash dividend is exempt from dividends tax in various instances. Despite these exemptions, section 64G(1) provides that, subject to section 64G(2) and (3), a company that declares and pays a cash dividend must withhold dividends tax from that payment.
Section 64G(2)(a) provides that a company must not withhold any dividends tax from the payment of a dividend if the person to whom payment is made has (1) by a date determined by the company or (2) if no date has been determined by the company, by the date of payment, submitted to the company:
- the prescribed declaration by the beneficial owner that the dividend is exempt from dividends tax; and
- a written undertaking should be made to inform the company, in writing, should the circumstances affecting the exemption applicable to the beneficial owner change or should the beneficial owner cease to be the beneficial owner.
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