Author:Liesl Kruger – Tax Consultant – ENSafrica Loans between companies and their shareholders, or other group companies are a common method of providing finance in the South African corporate environment. Loans of this nature may, however, give rise to tax implications in the hands of the lender or the recipient, and careful consideration should therefore be given to these transactions.
Category: Dividend Tax
Everything you need to know about STC credits
Author: Mike Dingley (Mazars) Dividends Tax has been payable since 1 April 2012. Prior to this, resident companies that declared dividends were subject to Secondary Tax on Companies (‘STC’). Under the Dividends Tax regime when a company pays a dividend, it is, subject to certain requirements, allowed to deduct unused STC credits from the dividend amount in calculating the amount subject to Dividends Tax. Some changes are in the pipeline though, but for those who need a better understanding, here are some points to note.
Transfer pricing – changes to secondary adjustments
By Christel du Preez, Senior Tax Manager Grant Thornton Johannesburg The proposed amendment The Draft Taxation Laws Amendment Bill 2014 proposes a revision of transfer pricing compliance in in the form of a deemed dividend, from 1 January 2015. It proposes that in future, the Section 31 secondary adjustment be deemed a dividend in specie, to be paid by the South African taxpayer to its foreign connected person.
The tinderbox of asset-for-share transactions
Author: Andrea Minnaar – Tax Director at ENSafrica The Income Tax Act No. 58 of 1962 (“the Act”) contains a number of provisions in terms of which assets may be transferred from one taxpayer to another on a tax-free basis, with the tax in relation to such an asset being deferred until the transferee eventually disposes of the asset. One such provision is contained in section 42, dealing with “asset-for-share transactions”.
Share lending arrangements – more tax changes!
Author: Magda Snyckers – Tax Director at ENSafrica The securities lending industry has seen many changes to the taxation of share lending arrangements in South Africa during the last couple of years. In particular, since the introduction of dividends tax on 1 April 2012, the provisions in the Income Tax Act (“the Act“) which relate to the income tax and dividends tax treatment of dividends received by borrowers of JSE listed shares and payments made by such borrowers have been regularly amended, often with retrospective effect. The Draft Taxation Laws Amendment Bill which was released on 17 July 2014 (“2014 Draft Bill”) is no exception, and again contains changes to the dividends tax provisions relating to payments made by such borrowers.
STC Credits to Expire on 31 March 2015
Companies should take note of the fact that Secondary Tax on Companies (STC) credits that they have accumulated up to 31 March 2015 will expire on that date. The implication is that companies with STC credits should take advantage of the credits by paying dividends on or before 31 March 2015. The benefit of STC credits is only enjoyed at the point where dividends are distributed to shareholders who are not exempt from the Dividends Tax – for example where dividends are paid to shareholders who are natural persons. Therefore multi-tier groups of companies will have to pay dividends all of the way up and out of the group on or before 31 March 2015 for the non-exempt shareholders to experience a benefit. The benefit derived by a non-exempt shareholder from an STC credit is that the effective rate of Dividends Tax payable is reduced.
Branch vs. Subsidiary: Key tax considerations
Author: Wendy Lumsden Foreign investors frequently face the decision of whether to conduct operations in South Africa as a branch or whether to setup a subsidiary for undertaking South African activities. This article highlights the key South African tax consequences of a Branch as opposed to those of a Subsidiary and considers some of the other key considerations, such as legal liability.
Employee share incentive schemes new anti-avoidance measures
By Douglas Gaul, Tax Manager Grant Thornton Johannesburg Prior to 1 March 2014, dividends received from equity shares that were acquired by an employee as part of a share incentive scheme, were exempt from income tax (with some exceptions), even if these shares were held by a share trust on behalf of the employees. This situation has changed, and share incentive schemes must be reviewed to determine whether they still achieve the outcomes they were originally setup to deliver.
Exemptions – Listed shares and the foreign dividend exemption
The South African Revenue Service (SARS) released Binding Class Ruling No. 42 (BCR 42) on 7 February 2014. The factual circumstances in respect of which the ruling was made are as follows: Company Y is a company incorporated and resident in foreign country Y. Company X is a company incorporated and resident in country X. Company X is also a wholly-owned subsidiary of Company Y. Company X is to be listed on the JSE Limited. Its business is investment in foreign debt instruments, on which it will receive interest returns. Company X intends to raise funds for its business by issuing certain preferred securities. The preferred securities will be issued through its branch in country Y.
Amendments relating to dividend exemptions in the context of incentive schemes
Author: Andrea Minnaar of ENSafrica Recent amendments were made to both the local dividend income tax exemption in section 10(1)(k)(i) of the Income Tax Act, 1962 (“the Act”) as well the foreign dividend income tax exemption in section 10B of the Act, in terms of the Taxation Laws Amendment Act, No. 31 of 2013. In terms of these amendments, the local and foreign dividend income tax exemptions will not be available to any dividend or foreign dividend: