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Dividend Tax as opposed to Secondary Tax on Companies

It has been been nearly three years since the new Dividends Tax (DT) regime came into operation on 1 April 2012.  However, DT remains a somewhat unfamiliar concept for taxpayers who have been used to the Seconday Tax on Companies (STC) system for nearly 20 years.

In this article we wish to explain the basic difference between these two tax systems.

The major difference between the two systems is the following:

  • In the case of DT the tax is levied at a rate of 15% while STC used to be levied at a rate of 10%;
  • While STC was a liability on the part of the company, DT is now levied on the shareholder receiving the dividend.

The DT needs to be withheld from the gross dividend declared by the company paying the dividend and paid over to the South African Revenue Service (SARS), while only the net dividend (after taking into account the DT) is paid to the shareholder.  In the case of STC the tax was payable by the company in addition to the dividend, with no tax liability on the part of the shareholder.

In order to illustrate the difference, we use the example of Company A declaring a dividend of R 100 to its sole shareholder, Mr X.


It is clear from the above example that with DT only 85% reaches the pocket of Mr X, as opposed to 90.9% under the previous STC dispensation.

Should you have any questions on the issue of declaring dividends, the related Companies Act requirements, or calculation of dividend tax, kindly contact your relationship director or Christa Swart at   or 021 840 1600.

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