Tax Tuesday: Foreign dividends

De Wet De VilliersLatest, Tax Tuesday

foreign dividendsLast month’s blog touched on how dividends tax is applied when a local company declares dividends. In this month’s blog, we’ll look at the tax implications when a foreign company declares dividends.

Dividends declared by foreign companies are only subject to dividends tax in South Africa if the foreign company is also listed on the JSE.

Example 1: Richemont, foreign dual-listed company

Let’s assume Richemont (dual listed on the SIX Swiss Exchange and the JSE) pays a dividend of R100 to a South African shareholder called John. The R100 will be subject to Swiss dividends tax at 35%, and therefore John only receives R65 in his pocket.

In South Africa, John would pay dividends tax of 20% on the R100,  and therefore is out of pocket with 15% (i.e. R15). The 15% can be claimed back from the Swiss Government subject to the requirements of the double tax agreement between the two countries.

If foreign dividends tax is less than the 20% local dividends tax, then John would merely pay the difference to SARS.

The dividend received will also not be subject to income tax once it’s in John’s pocket.

Example 2: Apple, foreign listed company

If the foreign company is not listed on the JSE, local dividends tax won’t apply. Let’s assume Apple (not listed on the JSE) pays a dividend of R100 to John, the US dividends tax of 30% applies. John only receives R70 in his pocket.

We know South African dividends tax doesn’t apply, but now we need to know if the dividend received by John becomes subject to income tax in South Africa.

If Apple was listed on the JSE, or if John held 10% of Apple, the dividend received would not have been subject to income tax in South Africa.

However, with Apple not listed on the JSE and assuming John does not hold 10% – what amount will be subject to tax? –  In this scenario SARS exempts the following amount from normal income tax:

Foreign dividend received multiplied by 26 divided by 41.

In John’s case, it will be:

70 x 26 / 41 = 44,39

This means John will be taxed on R25,61

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday. Don’t miss it!

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