Cape Town – To reduce the difference between the combined statutory tax rate on dividends and the top marginal personal income tax rate, government is increasing the dividend withholding tax rate to 20%, effective from February 22 2017.
Dividend income paid to shareholders has been taxed at a rate of 15% thus far. After accounting for corporate income tax, which is paid before a distribution of dividends, the combined statutory tax rate on dividends is 38.8%. Currently, South Africa’s combined statutory tax rate on dividend income falls below the OECD average, states the Budget Review.
The exemption and rates for inbound foreign dividends will also be adjusted in line with the new rate, effective for years of assessment commencing on or after March 1 2017.
To align with the increased effective capital gains tax rate, government also proposes to increase the withholding tax on immovable property sales by non-residents. Rates will be increased from 5% to 7.5% for individuals, 7.5% to 10% for companies and 10% to 15% for trusts.
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