Shareholders brace yourself, the dividend tax rate just jumped up from 15% to 20% as of February 22nd, 2017. The reason given by government was to reduce the difference between the combined statutory tax rate on dividends and the top marginal personal income tax rate.
Does Dividend Tax apply to me?
Dividend Tax is a tax that applies to shareholders when dividends are paid to them. If you receive dividend payments from either a South African tax resident company, or a foreign company whose shares are listed on a South African exchange, you will likely be charged Dividends Tax.
How will Dividend Tax affect me as a shareholder?
As a shareholder, the immediate visible effect of this will be dependent on your portfolio.
If you have invested in stocks where the dividends paid on the stocks is a portion of the profits that the company has earned, the dividend payments you receive may fluctuate from month to month and as a result, you may now see lower lows or slightly reduced highs. If, however, the dividend policy of the company is to regulate dividend payments or you have invested in funds that only change dividend payments annually, you will immediately notice reduced returns.
The reason for noticing a reduction is that you are not personally liable for paying Dividends Tax and it is usually paid by a withholding agent prior to you receiving a dividend payment. It is important to note that you are however liable for paying personal tax on any money you make from investments. There is an allocated exemption which has stayed the same for the last 4 years. It is R23 800 for any person younger than 65, and R34 500 for any person 65 and older.
To learn more about Dividends tax, view our updated blog article here: https://www.dirmeik.co.za/blog/2016/08/29/dividends-tax/
While it is never good news when there is increased taxation, the bright side is that if we look at the OECD average (Organisation for Economic Co-operation and Development – an organisation whose mission is to promote policies that will improve the economic and social well-being of people around the world), South Africa’s combined statutory tax rate on dividend income still falls below the global average.
If you are unsure about how Dividend Tax may apply to you and your investment portfolio, contact Dirmeik Consulting today for expert tax advice and friendly, efficient service. Call Dirmeik Consulting on:
Cape Town: 021 421 4444,
Johannesburg: 010 007 3026,
Durban: 031 007 0881