dividends tax

[StephanieB]

Hi Everyone
with the dividends tax that has changed, I am now once again uncertain.
Last year we paid out dividends to the 2 members of cc an amount of R60 000. We then ofcourse paid 10% tax so R6 000 was paid to SARS.
Now I am not sure that say if we pay dividends to the members again of R60 000 for both of them, how do i work out tax? Hope you will be able to help me with this.

Thanks so much

[Nickolai Naydenov]

Dividents tax and stc is the same as far as I'm concerned, however the company needs to withold the 15% dividents tax and pay the money to sars

[Mark Atkinson]

Hi Stephanie,

Dividends tax is now more like a withholding tax. In fact, it is a withholding tax.

The legislation requires now that you withhold 15% of the dividend you're paying to members and pay that over to SARS in the form of Dividends tax.

So in effect, you would declare a R60 000 dividend, the members would receive R51 000 and you would pay R9 000 over to SARS.

It is now the beneficiary of the dividend who is liable for the tax - the company paying the dividend simply acts as a sort of intermediary between SARS and the dividend beneficiaries.

Hope that helps?

[StephanieB]

Thanks so much. I understand it much better now. I noticed on the SARS website the following bullet where the dividend is exempt if the beneficial owner is : • A shareholder in a registered micro business (up to R200 000 of dividends paid by a micro business in a year of assessment are exempt). Who falls into the category of micro business?

[Mark Atkinson]

A person qualifies as being a micro business if that person is a natural person or is a company with a turnover less than R1 million per year. (Paraphrased from the legislation)

You need to register as a micro business with SARS (I think) in order to qualify for the dividends tax exemption. I think you need to register before a specific year of assessment, so you will likely not be able to qualify for exemption in terms of this dividend payout.

There are also a whole bunch of exclusions in terms of qualifying as a micro business. These can be found in the Sixth Schedule of the Income Tax Act (Para. 3)

[StephanieB]

Thanks so much. I really appreciate your help in this regard. Have a lovely day.

[Nickolai Naydenov]

But if you change your company to micro company you can't change it back for at least 3 years and another important thing is that you will pay turnover tax in a micro company

[AmithS]

@Nickolai, turnover tax meaning tax on your annual turnover vs tax on your net profit?

[Nickolai Naydenov]

Yip, exactly. A micro company will pay turnover tax at a lower rate and you only have to keep sales records so saving the costs of accountants and etc, I believe that can be beneficial to small service company that doesn't have much of expenses, here's a link:

http://www.sars.gov.za/home.asp?pid=43122

[eitnob]

Stephanie, just to clarify. In the past STC was a tax on the company. i.e. you would actually include STC in the tax line item in the income statement. It is now a tax on the receiver of a dividend, so the tax charge would not be in the company records.

STC entries :

Dr Retained income R60,000
Dr STC (Income statement) R6,000

Cr Bank R60,000
Cr STC payable R6,000

Under the new regime it is as follows :

Dr Retained income R60,000
Cr Bank R 60,000 (of which R51k to owners, and balance to SARS)

*Be very careful before you blindly register as a micro business as it may not be to ypour benefit at all...

[Marc28]

Hi,

I'm new to this site, but the dividends tax seems to be just a replacement for STC? But at 15%. I also have a business and was looking for more information on this and came across this blog post on this site which helped a lot. Do I qualify to pay Dividends Tax?

I don't understand why they changed the tax, do we not get taxed now ourselves?

[Nickolai Naydenov]

Hi Marc, it's the same thing with a different name, it's 15% instead of 10% and the company distributing the dividends withholds the tax. They changed that to make it easier and quicker to collect tax and to collect more money of course, government always needs more money their tris, luxury trips, vehicles, houses and etc are becoming more expensive

[CLIVE-TRIANGLE]

Actually the change was to align us with Europe and USA, where the recipient is liable for the tax and not the company.
For example the UK taxes dividends between 10 and 42.5%
USA at 15% where your marginal rate is 25% and higher
Both have a withholding tax system on dividends, like us.

With the old system, the effective tax rate on companies, assuming all profits were distributed was 35.2%. Now it is 28%.

[StephanieB]

thanks so much for all the input.