Dividends Tax in South Africa
/Dividends Tax in South Africa
If you receive dividends from a South African company (or you run a (Pty) Ltd that pays dividends), it’s important to understand what “dividends tax” is, who must deal with it, and what paperwork we need from you each year.
What is dividends tax?
Dividends tax is a tax that applies when a company pays a dividend to a shareholder (more accurately, the “beneficial owner” of the dividend). In most cases it’s collected by withholding it from the dividend before the shareholder receives the money.
SARS describes a dividend (in essence) as a payment by a company to a shareholder in respect of a share, but it specifically excludes a return of “contributed tax capital” (CTC) from being treated as a dividend (the reason this is important is because CTC falls under Capital Gains Tax Rules).
Who pays it, and what does “withholding tax” mean?
Dividends tax is legally the shareholder’s tax, but SARS makes the system work by requiring a “withholding agent” to do the practical work. That withholding agent is usually the company paying the dividend, or sometimes a regulated intermediary (for example, an investment platform) if one is involved.
So, in everyday terms, dividends tax behaves a bit like PAYE in the sense that SARS gets the tax “up front” through withholding, rather than waiting for you to settle it later. The key difference is that dividends tax is generally a final withholding tax on South African dividends for many individuals, but we still need the supporting documents to report correctly and to support any exemptions or special cases.
How much is it?
The standard dividends tax rate is 20% for dividends paid on or after 22 February 2017 (unless an exemption or reduced rate applies).
Dividend Withholding Tax Calculation Example:
If a company earns R100,000 in profit:
R27,000 is paid as company tax.
R73,000 is available as distributable profit.
R14,600 (20%) is withheld as dividends tax.
The shareholder receives R58,400.
This calculation example also highlights why taxes on dividends are often seen as more tax-efficient for individuals in higher income tax brackets. The dividend tax rate in South Africa remains fixed at 20%, whereas personal income tax can reach up to 45%.
When must it be paid to SARS?
SARS requires the withholding agent to pay the tax to SARS on or before the last day of the month following the month in which the dividend was paid. SARS also notes that dividends tax payments should be accompanied by the DTR01 and DTR02 submissions.
Dividends are paid after company tax (why that matters)
A dividend is paid out of company profits after the company has already paid corporate income tax. In South Africa, corporate tax is commonly 27% (rate changes can happen over time, but this is the current “headline” rate most owner‑managed businesses think in).
This is why owner‑managed companies need to plan carefully: if you’re the sole shareholder and director, taking profits as dividends means the company pays corporate tax first, and then dividends tax is withheld when the dividend is paid.
Dividends can still be a sensible way to distribute profits, especially where shareholders are not employees/directors (so you’re not trying to replace a salary package). In that situation, dividends are often the cleanest way to move value to shareholders without putting them onto payroll. The important takeaway is simply that a dividend is not “instead of” corporate tax — it comes after corporate tax.
Also remember: dividends are normally paid according to shareholding percentages within the same class of shares (unless your company has different classes of shares with different dividend rights). This is a company‑law and share‑rights point as much as a tax point.
Cash dividend vs dividend in specie (non‑cash dividend)
A cash dividend is exactly what it sounds like: the company pays money to the shareholder, and the withholding tax is taken off before the shareholder receives the net amount.
A dividend in specie is a dividend paid in something other than cash (for example, transferring an asset or value instead of paying money). The key practical difference is the liability for the dividends tax: SARS specifically points out that when a dividend consists of an asset in specie, the tax liability falls on the company itself (and the company cannot simply “withhold” it from cash, because there may be no cash being paid).
This is one of the reasons SARS (and we) ask for extra proof/documentation for dividends in specie — because the “value” and the fact of delivery/receipt matter.
Withholding documents we need from you (please send these)
SARS commonly asks taxpayers to back up dividends in an audit/verification with dividend certificates/vouchers that confirm the gross dividend, the date paid, and any tax withheld. SARS also asks for proof of delivery/receipt where the dividend was in specie.
In practice, that means we will usually ask you for the dividend certificate or voucher (or your investment tax certificate/statement) showing the gross dividend and the 20% dividends tax withheld and paid over to SARS.
If you’re unsure what you have, send what you received — we can tell you if anything is missing.
Low / no‑interest loans to shareholders: the “deemed dividend” risk
If a company makes a loan to a shareholder (or certain connected persons) and the interest charged is lower than the official rate, the shortfall can create a deemed dividend in specie. In other words, it’s not the loan capital that is treated as a dividend — it’s the benefit represented by the under‑charged interest (the “difference”).
A practical way to think about it is this: SARS expects shareholder loan accounts to be priced at least at the official interest rate. If you charge less, the “discount” can be treated as a distribution of value, and dividends tax consequences can follow. The Tax Faculty summary of the rule states that the difference gives rise to a dividend in specie, that it is deemed paid at year end, and that the company is liable for the dividends tax.
The official rate of interest itself changes over time (it moves with interest rates), and SARS publishes tables of interest rates, including the “official rate of interest” used for these kinds of calculations.
What we want you to take from this: if your private company has a shareholder loan, please tell us and please send us the loan balance and the interest rate being charged. If the rate is low or nil, we can help you tidy it up (often by putting a proper loan agreement in place and charging interest at the official rate), so you don’t get an unpleasant dividends tax surprise later.
Share buy‑backs in private (unlisted) companies: why CTC and CGT both matter
A share buy‑back (where the company buys back its own shares from a shareholder) can look simple commercially, but the tax treatment is often a split between capital and dividend.
The dividend definition in the Income Tax Act is broad enough to include amounts paid “as consideration for the acquisition of any share” (which covers a buy‑back), but it excludes the portion that results in a reduction of contributed tax capital (CTC).
When CTC is returned to a shareholder, it is treated as a “return of capital” and is dealt with under the capital gains tax rules as a reduction in base cost, with any excess potentially becoming a capital gain. That’s why buy‑backs commonly have a CGT component linked to the CTC portion.
There is also an important governance/admin point: it is critical that directors properly determine and record (in a written resolution) the extent to which a distribution is a return of CTC, and shareholders must be notified in writing by the time of the distribution of how much is return of capital. If that is not done correctly, the amount risks being treated as a dividend (with dividends tax consequences).
So, if you have done (or plan to do) a share buy‑back in an unlisted company, please send us the agreement and the resolutions, and tell us what portion was treated as CTC. We will then split it correctly between the CGT side (CTC/return of capital mechanics) and the dividends tax side (the remainder).
A quick reminder on exemptions and reduced rates
Some beneficial owners qualify for an exemption (for example, dividends paid to certain entities such as resident companies can be exempt), and foreign shareholders may qualify for reduced rates under a Double Tax Agreement — but the paperwork matters. SARS explains that the declaration and undertaking forms must be completed and provided to the withholding agent before the exemption or reduced rate can be applied.
Legal Requirements for Declaring Dividends
Following the Companies Act, 2008 (Act No. 71 of 2008), a company may only declare dividends if it meets the following conditions:
Solvency and Liquidity Test: After the dividend is declared, the company must be able to pay its debts as they fall due and maintain assets exceeding liabilities.
Board Resolution: The board must formally approve the dividend and confirm the company’s solvency and liquidity.
Shareholders’ Rights: Once declared, shareholders are legally entitled to receive dividends, although companies are not required to declare them annually.
Dividends declared from one company to another (e.g., to a holding company) are exempt from dividend tax.
What we would love you to do now
If you received dividends during the year, please send us the supporting documents (dividend certificates/vouchers, investment tax certificates/statements) as soon as you receive them, rather than at the last minute. SARS commonly asks for these documents in a verification, and having them saved on file makes your tax return smoother and reduces audit stress.
If you run a private company, please also flag any shareholder loan accounts, especially where the interest is low or not charged, so we can check whether the official‑rate requirement could trigger a deemed dividend in specie.
Finally, if you are paying dividends from your company, remember that dividends come out after corporate tax, and they are normally paid according to the shareholding percentages (unless you have different share classes). Keeping the paperwork neat — resolutions, vouchers, and loan agreements — is what keeps dividends tax “boring” (which is exactly what we want).
If you have any questions, please don’t hesitate to contact us.
