Dividend Tax in South Africa: How It Works for Shareholders

Dividends tax in South Africa is a final withholding tax levied at 20% on dividends paid by South African resident companies and by foreign companies listed on a South African exchange. The company or your broker withholds the tax and pays it to SARS before the dividend reaches you - so you receive the net amount (SARS: Dividends Tax, 2024). Even though the tax is withheld upfront, you must still declare dividends on your ITR12.

Key Takeaways

Dividends tax rate: 20%, withheld at source by the company or broker before payment.

Key exemptions: resident companies receiving SA dividends, registered retirement funds, and shares held in a tax-free savings account (TFSA).

Treaty relief may reduce the 20% rate for non-residents - a declaration must be submitted before the dividend is paid.

All dividends (local and foreign) must still be declared on your ITR12 even when tax has been correctly withheld.

The rate and how it is withheld

The standard dividends tax rate is 20% under section 64E of the Income Tax Act (legislation.gov.za). When a listed company declares a dividend, your stockbroker or transfer secretary withholds 20% and pays it to SARS on your behalf. For unlisted companies, the company itself withholds the tax before distributing to shareholders.

You receive the net amount - the gross dividend less the 20% withheld. Your broker or the company’s transfer secretary typically issues an IT3(b) certificate showing the gross dividend, tax withheld, and net payment. SARS pre-populates some IT3(b) data on your ITR12, but check this against your own records before submitting.

Common exemptions

The 20% rate does not apply in all cases. Key exemptions include (SARS: Dividends Tax):

South African resident companies receiving dividends from other South African resident companies are generally exempt - this prevents double taxation within the corporate chain.
Registered retirement funds (pension funds, provident funds, preservation funds) are exempt from dividends tax on dividends received within the fund.
Public benefit organisations with SARS approval under section 30 of the Income Tax Act are exempt.
Tax-free savings accounts (TFSA): dividends received within a registered TFSA are exempt from dividends tax. This is one of the main advantages of investing dividend-paying shares through a TFSA.
Treaty relief: shareholders resident in a country that has a double taxation agreement with South Africa may be entitled to a reduced rate - common reduced rates are 5% or 10% under various DTAs (SARS: DTAs).

To claim any exemption or reduced rate, submit a written declaration and undertaking to the company or regulated intermediary before the dividend is paid. If you miss this step, the full 20% is withheld and recovering the excess is a more complex process.

Dividends from foreign companies

If you receive dividends from a foreign company not listed on a South African exchange, dividends tax generally does not apply - the South African withholding mechanism only covers South African resident companies and foreign-listed companies.

However, those foreign dividends may still be taxable as ordinary income. Declare them in the Foreign Income section of your ITR12. Certain exemptions apply - for example, individuals holding less than 10% of the equity shares in a foreign company may qualify for a foreign dividend exemption up to the prescribed threshold. Verify the current thresholds and rules at sars.gov.za.

Declaring dividends on your ITR12

The ITR12 requires separate declaration even when tax has already been withheld:

Local dividends: declare in the Local Dividends section.
Foreign dividends: declare in the Foreign Income section.

SARS pre-populates some dividend data using IT3(b) information submitted by regulated intermediaries. Always check these pre-populated amounts against your own broker statements before submitting. Differences arise when brokers submit late, when you hold shares through multiple platforms, or when foreign dividends aren’t captured automatically.

Records to keep

Retain for at least five years:

IT3(b) certificates and broker statements showing dividends received and tax withheld.
Share purchase and sale records linked to dividend-paying shares.
TFSA annual investment statements.
Declarations or undertakings submitted to claim an exemption or reduced rate.
Any treaty relief applications and approvals.

Common mistakes

Assuming dividends are tax-free because tax was withheld. Withholding at source satisfies the dividends tax liability, but the amounts must still be declared on the ITR12. Omitting them may result in SARS querying the return.

Missing the deadline for exemption declarations. If you qualify for an exemption and don’t submit the declaration before the dividend is paid, the full 20% is withheld. Recovering the excess requires a formal process through SARS.

Overlooking foreign dividends. Dividends received through offshore platforms or directly from foreign companies not listed on a South African exchange are still taxable and must be declared, even though they are not subject to South African withholding.

Frequently Asked Questions

Do I need to declare dividends on my tax return if tax was already withheld?

Yes. Dividends tax withheld at source satisfies the withholding obligation but doesn’t replace the declaration obligation on your ITR12. Local dividends go in the Local Dividends section and foreign dividends in the Foreign Income section. SARS pre-populates some dividend data from IT3(b) submissions - check these against your own broker statements before submitting.

Are dividends received in a tax-free savings account subject to dividends tax?

No. Dividends received within a registered TFSA are exempt from dividends tax. This is one of the main advantages of holding dividend-paying investments through a TFSA rather than a standard investment account. Confirm that your investment is in a properly registered TFSA - not a standard savings account with a “tax-free” label.

How do I claim a reduced dividends tax rate under a double taxation agreement?

Submit a written declaration and undertaking to the company’s transfer secretary or your broker before the record date for the dividend. The declaration confirms your residency and entitlement to the reduced treaty rate. If you miss the deadline, the full 20% is withheld and claiming the excess back is a more complex process. Contact your broker well in advance of any expected dividend payment.

Are dividends from foreign companies treated differently?

Dividends from foreign companies not listed on a South African exchange are not subject to South African dividends withholding tax. They may still be taxable as ordinary income in South Africa, depending on the amount and your shareholding percentage. Declare them in the Foreign Income section of your ITR12 and verify applicable exemptions with SARS.

Sources

SARS: Dividends Tax - rates, exemptions, withholding obligations, and declaration requirements
Income Tax Act 58 of 1962, section 64E - legislative basis for the 20% dividends tax rate and exemptions
SARS: Double Taxation Agreements - reduced rates available under DTA provisions

This guide is for general educational purposes. Dividend tax rules, exemptions, and treaty rates can change - verify current requirements with SARS or a qualified tax practitioner before acting.