Page 175 - SAIT Compendium 2016 Volume2

IN 2 (3) Income Tax acT: InTeRPReTaTIon noTes IN 2 (3) After introduction of dividends tax
The above de nition comes into operation on the date on which the dividends tax contained in Part VIII of Chapter II of the Act comes into operation. Under section 56 (2) of the Revenue Laws Amendment Act 60 of 2008 the dividends tax comes into operation on a date determined by the Minister by notice in the Gazette, which date must be at least three months after the date of the notice.
The de nition of a ‘dividend’ in section 1 of the Act before the coming into operation of Part VIII of the Act, is contained in Annexure B to this Note.
De nition of ‘foreign company’ in section 9D(1)
De nition of ‘listed company’ in section 1
Section 11C
‘foreign dividend’ means any dividend, as de ned prior to the coming into operation of Part VIII of Chapter II of this Act, received by or which accrued to any person from a foreign company as de ned in section 9D;
‘foreign company’ means any association, corporation, company, arrangement or scheme contemplated in paragraph (a), (b), (c), (e) or (f) of the de nition of ‘company’ in section 1, which is not a resident;
‘listed company’ means a company where its shares or depository receipts in respect of its shares are listed on— (a) an exchange as de ned in section 1 and licensed under section 10 of the Securities Services Act, 2004; or
(b) a stock exchange in a country other than the Republic which has been recognised by the Minister as contemplated
in paragraph (c) of the de nition of ‘recognised exchange’ in paragraph 1 of the Eighth Schedule;
11C. Deductions in respect of foreign dividends
(1) In determining the taxable income of a person for a year of assessment which is derived from any foreign dividends received by or accrued to that person during that year, there shall be allowed as a deduction any interest actually incurred by that person during that year in the production of income in the form of foreign dividends.
(2) The amount of the deduction under subsection (1) is limited to the amount of foreign dividends which are included in the income of the person during the year of assessment.
(3) The amount by which the interest referred to in subsection (1) exceeds the amount of the foreign dividends referred to in subsection (2) (if any), must be reduced by the amount of any foreign dividends received by or accrued to that person during the year of assessment which are exempt from tax and the balance must—
(a) be carried forward to the immediately succeeding year of assessment; and
(b) be deemed to be an amount of interest actually incurred by that person during that succeeding year of assessment in the production of income in the form of foreign dividends.
4. The application of the law
4.1 Inclusion of foreign dividends in gross income
South African residents are, but for certain exclusions or exemptions, liable to income tax on their worldwide income, that is, income derived from sources within and outside South Africa. For the purposes of the Act any dividend received by or which accrued to a resident from a foreign company is a ‘foreign dividend’, as de ned in section 1.
Under paragraph (k) of the de nition of ‘gross income’ in section 1, a foreign dividend is included in the gross income of a person. This inclusion is determined before the deduction of any foreign withholding tax. Any withholding tax is accounted for by way of a rebate or deduction under section 6quat.
4.2 Calculating income derived from foreign dividends
In certain circumstances foreign dividends included in gross income may be exempt from tax under the Act. Those foreign dividends included in gross income which are not exempt from tax, are for purposes of this Note referred to as taxable foreign dividends. In order to calculate income derived from foreign dividends the following formula must be applied:
R
Gross income
• Foreign dividends — taxable and exempt XXX
Less:
• Foreign dividends — exempt
Income derived from foreign dividends XXX
4.2.1 Exemption for foreign dividends — section 10 (1) (k) (ii)
Section 10 (1) (k) (ii) provides for a number of exemptions for foreign dividends which form part of a person’s gross
income if certain conditions are met. The following exemptions are of particular importance to an individual who is a portfolio investor:
a. A foreign dividend will be exempt from income tax when the underlying pro ts from which it is distributed—
relate to any amount that has been, or will be, subject to tax in South Africa under the Act.
(XXX)
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