📌 What You'll Learn
Understanding STC and Dividends Tax
If you've been investing in South African shares for a while, you've probably heard the acronyms STC (Secondary Tax on Companies) and Dividends Tax. And if you're like most of my clients, you're asking: Will STC and dividends tax overlap? Do I need to pay both?
Let me clear this up right away: no, they do not overlap. STC was abolished back in 2012, and Dividends Tax took its place. But the confusion persists, especially when you're dealing with historical dividends or cross-border payments. I've seen accountants file incorrect returns because they assumed both taxes applied to the same dividend. That's a costly mistake.
Let's break down each tax so you see why they never coexist.
What Was STC?
STC was a tax on the company when it declared a dividend. The company paid 10% (later 12.5%) of the net dividend amount to SARS. Think of it as a penalty for distributing profits instead of retaining them. The shareholder received the dividend net of STC and didn't have to pay any further tax on it (for individuals).
What Is Dividends Tax?
Dividends Tax is a withholding tax on the shareholder. The company (or its transfer agent) withholds 20% (for residents) or varying rates for non-residents and pays it directly to SARS. The shareholder gets the net amount. For individuals, this is a final tax, but corporate shareholders and certain exemptions exist.
The fundamental shift: STC taxed the company's act of distributing; Dividends Tax taxes the shareholder's receipt.
What Is the Relationship Between STC and Dividends Tax?
They are mutually exclusive. When Dividends Tax was introduced, STC was repealed. There is no period where both applied to the same dividend. However, there can be confusion when you receive a dividend from a source that still references old STC rules, like foreign dividends paid to a South African resident. Let's look at a concrete example.
| Aspect | STC (until March 2012) | Dividends Tax (from April 2012) |
|---|---|---|
| Taxpayer | Company declaring dividend | Shareholder receiving dividend |
| Rate | 10% (net dividend) then 12.5% | 20% (residents) / variable (non-residents) |
| When paid | Within 30 days of dividend declaration | Within 14 days of dividend payment |
| Exemptions | Small companies, certain dividends | Public benefit organisations, retirement funds, etc. |
| Impact on shareholder | No further tax (net receipt) | Withheld at source (net receipt) |
Notice: The shareholder's net cash flow is similar, but the tax burden shifted from the company to the individual. That's why some investors think they pay double — but they don't.
Do You Need to Pay Both?
Unless you're dealing with a dividend declared before April 2012 but paid after (rare, but possible), the answer is no. I've had clients ask: My company paid STC back in 2010, and now I got a dividend — do I owe Dividends Tax too? No — that old dividend was already taxed under STC, and Dividends Tax didn't exist yet. For dividends declared from April 2012 onward, only Dividends Tax applies.
But there are tricky situations — like scrip dividends or dividends in specie. In those cases, the tax treatment can be different, but still no overlap. SARS is very clear that each dividend is subject to only one regime.
How to Calculate Your Tax Liability Correctly
Let's walk through a realistic scenario.
Scenario: You receive a dividend from a JSE-listed company
Company ABC declares a gross dividend of R100 per share. Under Dividends Tax, 20% (R20) is withheld and paid to SARS. You receive R80 net. That's it — no STC. If you're an individual, you don't need to include this in your tax return (unless you're non-resident or entitled to a reduced rate).
But what if you're a company receiving a dividend from another SA company? Companies are exempt from Dividends Tax if they hold a participation exemption (hold at least 10% of shares). They receive the full R100 and then need to account for it in their corporate tax return. Still no STC.
Scenario: Foreign dividend received by SA resident
Say you own shares in Apple Inc. They pay a dividend of $1 per share. US withholding tax takes 15% (under treaty), so you get $0.85. That $0.85 is your foreign dividend. In your SA tax return, you include the gross $1 as income, claim the 15% US tax as a foreign tax credit, and then apply SA's normal tax rates. You do not pay STC or additional Dividends Tax on that foreign dividend. The SA domestic Dividends Tax only applies to dividends from SA companies or those treated as SA source.
The rule: no overlap — but you must keep proper records to prove no double taxation.
Common Taxpayer Mistakes
Over a decade of advising, I've seen three recurring errors:
- Assuming STC still applies: Some older investors still think companies pay STC. They see the word "secondary tax" in old documents and panic. Reassure them: it's history.
- Double-counting in returns: I've seen people include their net dividend in their income and then also report a "STC credit" — causing unnecessary queries. Only Dividends Tax or foreign withholding tax is relevant.
- Mishandling exempt entities: Pension funds and charities often think they must pay Dividends Tax. Actually, they are exempt if they submit a valid exemption declaration. They receive the full dividend without withholding.
To avoid these, always check the tax regime in place at the date of dividend declaration. SARS's official website has a clear timeline and guides.
Frequently Asked Questions
I hope this clears up the confusion. Remember: STC and Dividends Tax do not overlap. If you ever face a situation where it seems they do, double-check the dates and consult a tax professional. SARS has a helpful guide titled "Dividends Tax" on its site—I recommend reading it. And please, don't fall for the myth that you pay twice. You don't.
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