South Africa: Dividend withholding tax and procedures for relief, exemption and reclaim

Effective

1 April 2012

with the introduction of a withholding tax at a rate of 15% on South African equities as previously announced (T08028, T11046, A12006), relief at source, quick refund and standard refund procedures will be available to Clearstream Banking customers and their underlying beneficial owners.

Background

As announced in the South African budget in 2009 and finalised by the Ministry of Finance in its 2012 Budget, a withholding tax on South African equities will be applicable to all dividend distribution declared or announced on or after 1 April 2012. The standard rate was first announced at 10% but was increased to 15% (see our Announcement A12041, dated 24 February 2012).

In addition, in certain circumstances, equities issued by foreign corporations and secondary listed on the Johannesburg Securities Exchange (JSE) may also be subject to some South African withholding tax.

Securities subject to withholding tax

South African dividend withholding tax will be due as follows:

• On all equities issued by South African corporations (listed and unlisted), hereinafter referred to as “South African Equities”; and
  
• Under certain conditions, on equities issued by foreign corporations and secondary listed on the JSE, hereinafter referred to as “Inward Listed Equities”.

Documentation requirements and procedures to benefit from relief at source or exemption from South African withholding tax are different for the two above-mentioned types of security, and are explained below.

Payments effectively subject to South African withholding tax

Withholding tax on South African Equities and Inward Listed Equities held on the JSE will be applicable to all dividend distribution declared or announced on or after 1 April 2012.

As a consequence, dividend distributions from securities subject to withholding tax paid after 1 April 2012 that were announced or declared before this date will not be subject to withholding tax.

Secondary Tax on Companies (STC) credits

Under the STC regime, a South African company earns STC credits from their own investments and may use these credits as an offset to reduce the tax that is payable by the company to the South African Revenue Service (SARS) when they declare their own dividend.

As the dividend withholding tax on shareholders is to replace the STC, there will be a transition period up to 1 April 2015, during which dividend paying companies will be able use their STC credits to offset the withholding tax that will be imposed on shareholders.

As a consequence, if the company paying the dividend is using its STC credits on the distribution of a dividend, the manufactured standard withholding tax rate for that payment will be reduced. Effectively, depending on the amount of STC credit used, the whole or a fraction of the dividend distributed will be tax-exempt, with the remaining portion (if any) not covered by the STC credits subject to the standard withholding tax rate of 15%. In such cases, customers may therefore receive two payments, one reflecting the tax-free portion and the other reflecting the portion (if any) subject to South African withholding tax.

The use of STC credits may vary from payment to payment and therefore will have to be communicated by the relevant company as and when the dividend is announced.

South African Equities

This section refers to equities issued by South African corporations, listed and unlisted.

Exemption and relief at source procedure Eligibility for exemption or relief at source

Exemption or relief at source from withholding tax on dividends is available when paid to:

• Any non-resident beneficial owner that:
  

• Resides in a country that has signed a Double Taxation Treaty (DTT) with South Africa that provides for a reduced tax rate lower than 15%; and
  
• Meets the conditions laid down by the applicable DTT to obtain the benefit of the reduced withholding tax rate. For a large majority of the tax treaties in force with South Africa, such a condition is to have a minimum holding of the capital of the distributing company.

• 
  
• Supranational entities recognised by the South African authorities;
  
• Foreign entities exempted from worldwide tax by way of the Diplomatic Immunities and Privileges Act (Act 37/2001) schedule 3 and 4 on the United Nations and its specialised agencies;
  
• South African residents that are eligible to claim under the following exemption codes:

Documentation requirements

To benefit from an exemption or relief at source of tax withheld on South African Equities, customers must provide us with the following documentation:

• One-Time Certificate for South African Equities and Inward Listed Equities

This certificate is valid until revoked.

• One of the following forms, according to the residency and status of the final beneficial owner:

Declaration for Reduced Rate from Dividend Withholding Tax - DTD(RR)

This form is to be completed by the final beneficial owner of a dividend that qualifies for a reduced taxation rate as per the applicable DTT. It is valid until revoked.

If the eligibility criteria stated by the DTT include the condition of a qualified participation in the distributing company, the holding percentage will have to be provided as the reason why the beneficial owner meets the eligibility criteria of the DTT. In such cases, the certificate is only valid for the particular payment and will have to be renewed per payment.

OR

Declaration for Exemption from Dividend Withholding Tax – DTD(EX)

This form is to be completed by the final beneficial owner that qualifies for an exemption of tax. It is valid until revoked.
It may be used by eligible South African residents, by foreign entities exempted from worldwide tax by way of the Diplomatic Immunities and Privileges Act schedule 3 and 4 on the United Nations and its specialised agencies, and by supranational entities.

For such foreign entities and supranational entities, additional documentation will have to be provided to support the exemption request.

It is the final beneficial owner’s responsibility to proactively provide the relevant supportive documentation.

• Power of Attorney

This form must be provided if the documentation is completed by a third party on behalf of the beneficial owner. It is valid until revoked.

Deadline for receipt of documents

Eligible beneficial owners can benefit from relief at source from withholding tax on dividends by providing the following:

• The required documentation, in original form, before the first dividend payment date no later than 10:00 CET two business days before Record Date.
  
• A corporate event instruction, either via SWIFT (for example, MT599 free-format message) or CreationOnline, for each dividend payment, no later than 10:00 CET two business days before Record Date. This instruction is a breakdown of beneficial owners that must contain all mandatory information per beneficiary (see attached template) as required by the SARS.

Quick refund procedure Eligibility for quick refund

Final beneficial owners that are eligible for exemption or relief at source but did not provide the proper certification within the respective deadline can apply for a quick refund. Documentation requirements

The documentation requirements to apply for a quick refund are the same as for the exemption or relief at source procedure. Deadline for receipt of documents

Eligible beneficial owners can benefit from a quick refund of withholding tax on dividends by providing the following:

• The required documentation, in original form, no later than 10:00 CET three business days before the last day of the month following the Payment Date.
  
• A corporate event instruction, either via SWIFT (for example, MT599 free-format message) or CreationOnline, for each dividend payment, no later than 10:00 CET three business days before the first day of the month following the Payment Date. This instruction is a breakdown of beneficial owners that must contain all mandatory information per beneficial owner (see template attached) as required by the SARS.
  

Standard refund procedure Eligibility for standard refund

Final beneficial owners that are eligible for exemption or relief at source but did not provide the proper certification within the relief at source or quick refund deadlines can apply for a standard refund. Documentation requirements

To apply for a standard refund of tax withheld on dividends, eligible beneficial owners must provide the following documents, in the original, per request:

• Letter of Request to Clearstream Banking for Reclaim of South African Withholding Tax
  
• One of the following forms, according to the residency and status of the final beneficial owner:

Declaration for Reduced Rate from Dividend Withholding Tax - DTD(RR)

This form is to be completed by the final beneficial owner of a dividend that qualifies for a reduced taxation rate as per the applicable DTT.

If the eligibility criteria stated by the DTT include the condition of a qualified participation in the distributing company, the holding percentage will have to be provided as the reason why the beneficial owner meets the eligibility criteria of the DTT.

OR

Declaration for Exemption from Dividend Withholding Tax – DTD(EX)

This form is to be completed by the final beneficial owner that qualifies for an exemption of tax.

It may be used by eligible South African residents, by foreign entities exempted from worldwide tax by way of the Diplomatic Immunities and Privileges Act schedule 3 and 4 on the United Nations and its specialised agencies, and by supranational entities.

For such foreign entities and supranational entities, additional documentation will have to be provided to support the refund request.

It is the final beneficial owner’s responsibility to proactively provide the relevant supportive documentation.

• Power of Attorney

This form must be provided if the documentation is completed by a third party on behalf of the beneficial owner.

• Credit Advice

This form must be submitted under the letterhead of the customer or of the customer’s agent and include the respective Clearstream Banking account number. The full chain of credit advices from final beneficial owner to Clearstream Banking must be provided.

Deadline for receipt of documents

Required documentation, in original form, must be provided at the latest two months before statutory deadline, which is three years after Payment Date.

Inward Listed Equities

Equities issued by a foreign corporation and held secondarily on the JSE may be subject to South African withholding tax in addition to the foreign tax withheld at source by the issuer.

If the standard rate of the foreign withholding tax is lower than the South African standard rate of withholding (15%), South African tax will be applied at a rate equal to the difference between the South African standard rate and the foreign standard tax rate.

If the standard rate of the foreign withholding tax is higher or equal to the South African standard rate of withholding, South African withholding will not apply.

Exemption at source procedure Eligibility for exemption at source

Exemption at source from South African withholding tax on an Inward Listed Securities distribution is available to beneficial owners that are either non-residents or South African exempt entities (as per the exemption codes listed in the previous section).

Beneficial owners who decide not to disclose themselves will be deemed non-exempted South African residents and the maximum rate of withholding tax will be withheld accordingly. Documentation requirements

To benefit from an exemption of tax withheld on Inward Listed Securities, the final beneficial owner must disclose itself.

Customers must provide us with the following original documentation:

• One-Time Certificate for South African Equities and Inward Listed Equities

This certificate is valid until revoked.

• Declaration for Exemption from Dividend Withholding Tax – DTD(EX)

When completed by a non-resident beneficial owner, this form must state that the beneficial owner is a person that is not a resident and that the dividend is a dividend contemplated in paragraph (b) of the definition of “dividend” in section 64D (exemption code J).

When completed by a South African exempt entity, the form must indicate the reason why the beneficial owner is exempt frorm dividend tax (exemption codes A to H).

It is valid until revoked.

• Power of Attorney

This form must be provided if the documentation is completed by a third party on behalf of the beneficial owner. It is valid until revoked.

Deadline for receipt of documents

Eligible beneficial owners can benefit from exemption at source from withholding tax on dividends by providing the following:

• The required documentation, in original form, before the first dividend payment date to which it should be applied and no later than 10:00 CET two business days before Record Date.
  
• A corporate event instruction, either via SWIFT (for example, MT599 free-format message) or CreationOnline, for each dividend payment, no later than 10:00 CET two business days before Record Date. This instruction is a breakdown beneficial owners that must contain all mandatory information per beneficial owner (see template attached) as required by the SARS.

Quick refund procedure Eligibility for quick refund

Eligible final beneficial owners who did not disclose themselves by providing the proper certification within the respective deadline can apply for a quick refund of South African withholding tax. Documentation requirements

The documentation requirements to apply for a quick refund are the same as for the exemption at source procedure. Deadline for receipt of documents

Eligible beneficial owners can benefit from a quick refund of withholding tax on dividends by providing the following:

• The required documentation, in original form, no later than 10:00 CET three business days before the last day of the month following the Payment Date.
  
• A corporate event instruction, either via SWIFT (for example, MT599 free-format message) or CreationOnline, for each dividend payment no later than 10:00 CET three business days before the first day of the month following the Payment Date. This instruction is a breakdown of beneficial owners that must contain all mandatory information per beneficial owner (see template attached) as required by the SARS.

Standard refund procedure Eligibility for standard refund

Final beneficial owners who are eligible for exemption or relief at source but did not provide the proper certification within the relief at source or quick refund deadlines can apply for a standard refund. Documentation requirements

To apply for a standard refund of tax withheld on dividend, eligible beneficial owners must provide the following documents, in original form, per request:

• Letter of Request to Clearstream Banking for Reclaim of South African Withholding Tax
  
• Declaration for Exemption from Dividend Withholding Tax – DTD(EX)

When completed by a non-resident beneficial owner, this form must state that the beneficial owner is a person that is not a resident and that the dividend is a dividend contemplated in paragraph (b) of the definition of “dividend” in section 64D (exemption code J).

When completed by a South African exempt entity, the form must indicate the reason why the beneficial owner is exempt frorm dividend tax (exemption codes A to H).

• Power of Attorney

This form must be provided if the documentation is completed by a third party on behalf of the beneficial owner.

• Credit Advice

This form must be submitted under the letterhead of the customer or of the customer’s agent and include the respective Clearstream Banking account number. The full chain of credit advices from final beneficial owner to Clearstream Banking must be provided.

Deadline for receipt of documents

Required documentation must be provided at the latest two months before the statutory deadline, which is three years after Payment Date.

Further information

For further information, please contact the Clearstream Banking¹ Tax Help Desk on:

or Clearstream Banking Customer Service or your Relationship Officer.

1. Clearstream Banking refers to Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).