Question 1

What is dividends withholding tax (DWT)?

Accepted Answer

Dividends withholding tax (DWT) is a 20% tax withheld at source on dividends declared by South African resident companies. The company declaring the dividend is responsible for withholding the tax and paying it to SARS on behalf of the shareholder. DWT was introduced on 1 April 2012, replacing Secondary Tax on Companies (STC).

Question 2

Who pays the dividends tax?

Accepted Answer

The company declaring the dividend withholds the tax from the dividend payment and pays it to SARS. The shareholder receives the net dividend after tax has been deducted. The company must submit a DWT return and payment to SARS by the last business day of the month following the month in which the dividend was paid.

Question 3

Are SA companies exempt from dividends tax?

Accepted Answer

Yes. South African resident companies are exempt from dividends withholding tax on inter-company dividends. This means if a company receives dividends from another SA company, no DWT is withheld. However, the exemption must be declared — the beneficial owner must submit a declaration and undertaking (DWT exemption form) to the company paying the dividend.

Question 4

Is DWT a final tax?

Accepted Answer

Yes, dividends withholding tax is a final withholding tax. This means the shareholder does not need to include the dividend in their income tax return (it is not subject to further taxation). The 20% withheld is the final tax liability on that dividend income. This makes it simpler than income tax, where provisional payments and assessments apply.

Question 5

Should I take a salary or dividends from my company?

Accepted Answer

The decision depends on your marginal income tax rate versus the effective dividend tax rate. Salary is deductible by the company (reducing company tax at 27%) but taxed in your hands at up to 45%. Dividends are paid from after-tax profits (27% company tax) plus 20% DWT on the remainder. The combined effective rate on dividends is approximately 41.6% (27% + 20% of 73%), which may be lower than your marginal income tax rate if you earn above roughly R700,000.

Country	DWT Rate	Conditions
United Kingdom	5% - 15%	5% if ≥10% shareholding, 15% otherwise
United States	5% - 15%	5% if ≥10% shareholding, 15% otherwise
Netherlands	5% - 10%	5% if ≥10% shareholding, 10% otherwise
Mauritius	5% - 15%	5% if ≥10% shareholding, 15% otherwise
Germany	7.5% - 15%	7.5% if ≥25% shareholding, 15% otherwise
Canada	5% - 15%	5% if ≥10% shareholding, 15% otherwise

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