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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

10B. Exemption of foreign dividends and dividends paid or declared by headquarter companies

 

(1) For the purposes of this section, 'foreign dividend' means any—
(a) foreign dividend as defined in section 1; or
(b) dividend paid or declared by a headquarter company.

 

(2) Subject to subsection (4), there must be exempt from normal tax any foreign dividend received by or accrued to a person—
(a) if that person (whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the total equity shares and voting rights in the company declaring the foreign dividend;
(b) if that person is a foreign company and the foreign dividend is paid or declared by another foreign company that is resident in the same country as that person;
(c) who is a resident to the extent that the foreign dividend does not exceed the aggregate of all amounts which are included in the income of that resident in terms of section 9D in any year of assessment, which relate to the net income of—
(i) the company declaring the foreign dividend; or
(ii) any other company which has been included in the income of that resident in terms of section 9D by virtue of that resident's participation rights in that other company held indirectly through the company declaring the foreign dividend,

reduced by—

(aa) the amount of any foreign tax payable in respect of the amounts so included in that resident’s income; and
(bb) so much of all foreign dividends received by or accrued to that resident at any time from any company contemplated in subparagraph (i) or (ii), as was—
(A) exempt from tax in terms of paragraph (a), (b) or (d); or
(B) previously not included in the income of that resident by virtue of any prior inclusion in terms of section 9D;

 

Provided that for the purposes of this paragraph, the net income of any company contemplated in subparagraphs (i) and (ii) must be determined without regard to subsection (3)

(d) to the extent that the foreign dividend is received by or accrues to that person in respect of a listed share and does not consist of a distribution of an asset in specie; or
(e) to the extent that the foreign dividend is received by or accrues to a company that is a resident in respect of a listed share and consists of the distribution of an asset in specie:

Provided that paragraphs (a) and (b) must not apply to any foreign dividend to the extent that the foreign dividend is deductible by the foreign company declaring or paying that foreign dividend in the determination of any tax on income on companies of the country in which that foreign company has its place of effective management: Provided further that paragraph (a) must not apply to any foreign dividend received by or accrued to that person in respect of a share other than an equity share

 

(3) In addition to the exemption provided for in subsection (2), there must be exempt from normal tax so much of the amount of the aggregate of any foreign dividends received by or accrued to a person during a year of assessment as—
(a) is not exempt from normal tax in terms of subsection (2) for that year of assessment; and
(b) does not during the year of assessment exceed an amount determined in accordance with the following formula:

 

A = B × C

 

in which formula:

(i) ‘A’ represents the amount to be exempted for a year of assessment in terms of this paragraph;
(ii) ‘B’ represents—
(aa) where the person is a natural person, deceased estate, insolvent estate or trust, the ratio of the number 25 to the number 40;
(bb) where the person is—
(A) a person other than a natural person, deceased estate, insolvent estate or trust; or
(B) an insurer in respect of its company policyholder fund, corporate fund and risk policy fund,

[Subitem (B) amended by section 15(1) of the Taxation Laws Amendment Act, 2014 (Act No. 43 of 2014)]

the ratio of the number 13 to the number 28; or

(cc) where the person is an insurer in respect of its individual policyholder fund, the ratio of the number 15 to the number 30; and
(iii) ‘C’ represents the aggregate of any foreign dividends received by or accrued to the person during a year of assessment that is not exempt from normal tax in terms of subsection (2).

 

(4) Subsections (2)(a) and (2)(b) do not apply in respect of any foreign dividend received by or accrued to any person—

(a)        if—

(i)        

(aa) any amount of that foreign dividend is determined directly or indirectly with reference to; or
(bb) that foreign dividend arises directly or indirectly from,

any amount paid or payable by any person to any other person; and

(ii) the amount so paid or payable is deductible from the income of the person by whom it is paid or payable and—
(aa) is not subject to normal tax in the hands of the other person contemplated in subparagraph (i); and
(bb) where that other person contemplated in subparagraph (i) is a controlled foreign company, is not taken into account in determining the net income, contemplated in section 9D(2A), of that controlled foreign company,

unless the amount so paid or payable is paid or payable as consideration for the purchase of trading stock by the person by whom the amount is paid or payable; or"; and

(b) from any portfolio contemplated in paragraph (e)(ii) of the definition of ‘company’ in section 1.

 

(5) The exemptions from tax provided by subsection (2) do not extend to any payments out of any foreign dividend received by or accrued to any person.

 

(6) Subsections (2) and (3) do not apply to any foreign dividend received by or accrued to a person in respect of—
(a) services rendered or to be rendered or in respect of or by virtue of employment or the holding of any office, other than a foreign dividend in respect of a share held by that person; or
(b) a restricted equity instrument as defined in section 8C that was acquired in the circumstances contemplated in that section if that foreign dividend is derived directly or indirectly from, or constitutes—
(i) an amount—
(aa) transferred or applied by a company as consideration for the acquisition or redemption of any share in that company; or
(bb) received or accrued in anticipation or in the course of the winding up, liquidation, deregistration or final termination of a company; or
(ii) an equity instrument that is not a restricted equity instrument as defined in section 8C that will, on vesting, be subject to that section.

[Subsection (6) substituted by section 25(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 March 2017]