Dividends declared by South African resident companies or non-resident companies, the shares of which are listed on a South African exchange, are subject to dividends tax of 20%. The tax liability in the case of a cash dividend is that of the beneficial owner of the dividend. The beneficial owner is the person entitled to the benefit of the dividend attaching to a share. If it is a cash dividend, then the company declaring the dividend has to withhold the dividends tax and pay it over to the South African Revenue Service ("SARS").  

However, in certain instances, the withholding obligation moves from the company that declares the dividend to the company that pays the dividend. This is the case where the company that declares the dividend pays the dividend to a regulated intermediary as defined in section 64D of the Income Tax Act, 1962 (the "Act"). 

A portfolio of a collective investment scheme in securities ("CIS") constitutes a regulated intermediary. A CIS also constitutes a person in terms of the Act, and as such, it constitutes a taxpayer in its own right.  

If a CIS invests in shares and a dividend is declared by the company, then the gross amount of the dividend will be paid over to the CIS because the CIS is a regulated intermediary and the withholding obligation moves to the CIS. To the extent that the CIS on-distributes the dividend to the holder of a participatory interest in the CIS (the "Unit Holder"), and it distributes the dividend within 12 months of its accrual, then the dividend will be deemed to have accrued directly to the Unit Holder. On the basis that the person who accrues the dividend is entitled to the benefit of the dividend attaching to the shares, the Unit Holder would, in such instance, be the beneficial owner of the dividend. If the Unit Holder is entitled to an exemption from the dividends tax, then the CIS will be entitled to pay the gross amount of the dividend to the Unit Holder. If the Unit Holder is not entitled to an exemption, then the CIS will have to withhold the dividends tax and it will only pay the net amount of the dividend to the Unit Holder and the CIS will pay the dividends tax so withheld to SARS. 

If the dividend received by the CIS is not on-distributed within 12 months of its accrual, then the dividend is deemed to accrue to the CIS. Prior to the promulgation of the Taxation Laws Amendment Act, 2018 (the "2018 TLAB"), the CIS was exempt from dividends tax in terms of section 64F(1)(k) of the Act. However, the 2018 TLAB deleted this exemption. The 2018 TLAB was promulgated on 17 January 2019 and the deletion of the exemption in section 64F(1)(k) applies from this date. 

Therefore, from 17 January 2019, a CIS that is the beneficial owner of a dividend that is received by or accrues to the CIS is subject to dividends tax at 20% on such dividend. As it is a regulated intermediary, the gross amount of the dividend may be paid to the CIS but the CIS will be required to account for and pay the 20% of dividends tax to SARS. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.