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May 23, 2024

South Africa | Johannesburg Stock Exchange-listed foreign dividend exemption

  • This Alert outlines:
    • Johannesburg Stock Exchange-(JSE)-listed foreign dividends (dividends from a foreign resident company listed on the JSE) received or accrued and how they should be treated for income tax purposes
    • A checklist to consider when receiving JSE-listed foreign dividends
    • An amendment affecting the income exemption of JSE-listed foreign dividends
    • In certain cases, the South African Revenue Service's treatment of JSE-listed foreign dividends as taxable foreign dividends subject to the partial dividend exemption

A recent change in the law modifies an income tax exemption available for income from foreign dividends received from shares of stock that are also listed on the Johannesburg Stock Exchange (JSE). Effective 1 January 2024, the exemption from income tax for dividends received or accrued from a JSE-listed company is subject to a very specific exclusion that could effectively remove the exemption.

In some foreign jurisdictions, the gross amount of the foreign dividend withholding tax is withheld without considering the reduced rate under the relevant double tax agreement, and taxpayers must apply to the revenue authority in the foreign jurisdiction to obtain a refund.

Further, in some cases, regulated intermediaries appear to withhold the full 20% South African dividend withholding amount, even though a rebate should be granted for foreign withholding tax correctly withheld in the foreign jurisdiction.

JSE-listed foreign dividends and tax treatment.

JSE-listed foreign dividends refer to foreign dividends that are paid by a nonresident company to a South African (SA) shareholder on shares listed on the JSE. The potential for double, or even triple, taxation is evident if the dividend is subject to foreign withholding tax, SA withholding tax and SA income tax.

Note that SARS refers to these dividends as "dual-listed dividends," which typically applies to this scenario but can also extend to shares of any foreign company listed on the JSE.1

For example, consider this fact pattern:

  • A Swiss-resident company, which may or may not be registered on the Swiss stock exchange, is listed on the JSE.
  • The company's South African shareholder is either a natural person or a company owning less than 20% of the company's capital, paying the dividends.
  • Dividends are subject to a 35% Swiss withholding tax.
  • As the shares are listed on the JSE, the dividends are also subject to a 20% dividend withholding tax in South Africa.
  • In certain cases, SARS might disregard the foreign dividend income exemption (for shares listed on the JSE) and instead apply the partial foreign dividend exemption.

Where the Double Taxation Agreement (DTA) between the Republic of South Africa and the Swiss Confederation (the DTA) is applied, the Swiss withholding tax should be reduced to 15%. The South African shareholder/regulated intermediary would need to apply to the Swiss authorities for this reduced rate to apply or to obtain a refund of 20% where the full 35% has been deducted.

Some countries will simply withhold at the reduced rate, which would obviate the need to ask the foreign authority to refund the additional tax.

The JSE-listed foreign dividend would also be subject to South African dividend withholding tax at 20%.

However, according to section 64N(1) of the Income Tax Act No. 58 of 1962 (referred to as the Income Tax Act), in South Africa, the dividend withholding tax rate of 20% should be reduced to 5% as a result of the DTA with Switzerland. This reduction occurs because 15% tax was already paid to Switzerland — which is decreased from the original rate of 35% to 15% under the DTA — and is not recoverable. (This tax paid is referred to as "the rebate" for the purposes of this Tax Alert.) One would again need to prove the foreign tax paid, otherwise the full 20% will be withheld. The company/regulated intermediary must obtain proof of any foreign taxes paid and reduce the amount of South African dividends tax payable.2

If the 5% South African dividend withholding tax has not been withheld and instead the full 20% was withheld, the taxpayer would need to recover the excess amount either from the foreign company that withheld the tax3 or from a regulated intermediary. 4 Any excess that cannot be recovered from the regulated intermediary should be reclaimed from SARS within a three-year period. The foreign company or regulated intermediary should have received a document from the taxpayer indicating that, according to the DTA, they should not withhold the full dividend amount. This document must be submitted on a SARS-prescribed form and filed within three years of the dividend declaration to claim any refund.

These JSE-listed foreign dividends are treated as exempt from income tax under section 10B(2)(d) — as they have already been subject to withholding tax in South Africa — and should be declared as such on the relevant tax return.

Taxpayers need to be aware of and examine whether:

  1. The foreign company paying the dividend has used a reduced DTA dividend rate — if a reduced DTA dividend rate was not used, as in the above example, the taxpayer must apply for a refund of the additional tax withheld (e.g., the 20% overpaid to the Swiss authority)
  2. The SA dividend withholding tax has been reduced by the foreign dividend withholding tax not recoverable by way of refund (e.g., 15% in the example above, resulting in an SA dividend withholding of only 5%)
  3. JSE-listed foreign dividends have been treated as nontaxable on the tax return

Further, taxpayers should remember that total withholding tax on the JSE-listed foreign dividend should not exceed 20%.

Amendment to the JSE-listed dividends exemption

An amendment has been made to the exemption from income tax for foreign dividends received from shares that are also listed on the JSE. Effective 1 January 2024, the exemption from income tax for dividends received or accrued from a JSE-listed company, as outlined in section 10B(2)(d), is now subject to a very specific exclusion. An amendment to subsection (4), to which the original exemption is subject, could effectively remove the exemption. This amendment was introduced to combat schemes in which, for example, SA financial institutions entered financing agreements with foreign JSE-listed companies. In these arrangements, the South African company would deduct interest locally and pay exempt interest to the nonresident company, which would then distribute a dividend to an SA-resident shareholder. Because the share was JSE-listed, the dividend would also be exempt. This method of "round-tripping" income creates an interest deduction without any corresponding pickup of taxable interest or dividend income. The amendment is broadly worded and could affect many foreign JSE-listed dividends, not just those directly or indirectly involved in schemes like the one described above.

Treasury proposed extending the anti-avoidance provision, which is already in place for the participation exemption and the country-to-country exemption, to include JSE-listed foreign dividends in situations involving round-tripping where there is no pickup of income.

The exemption from income tax for JSE-listed foreign dividends, effective 1 January 2024, will not apply if both:

  • The foreign shares are listed on the JSE and a foreign exchange
  • The foreign dividends are directly or indirectly funded by amounts that were deductible in South Africa5

To attempt to limit the impact of the new anti-avoidance rule solely to tax-avoidance schemes, this rule only applies in respect of foreign dividends that are declared from profits, provided that at least 20% of the profits were generated from transactions with persons who deducted the amounts paid or payable from income.

Current position with SARS

Recently, SARS has issued numerous queries regarding the taxability of the JSE-listed foreign dividends that taxpayers received or accrued on their minority holdings managed by financial institutions in South Africa. Either the JSE-listed foreign dividends are queried as to why SARS should not amend the assessment to treat them as taxable foreign dividends or SARS has simply reassessed the dividends as taxable foreign dividends.

Minority shareholders receive IT3B tax certificates6 from their financial advisors or regulated intermediaries, who categorize the income receipts according to how it should be treated on their year-end tax return. These certificates document that the foreign dividends received or accrued should be treated as exempt, in accordance with section 10B(2)(d), because the dividends flow from a nonresident company that is listed on the JSE. However, absent access to requisite financial information, the taxpayer may not be able to determine whether the correct amount of dividend withholding tax was withheld or whether the recently enacted exclusion, as discussed above, would apply. It is also unclear whether the financial institution or regulated intermediaries in question have the capacity to make this determination themselves.

Where SARS treats the dividends as taxable foreign dividends, the taxpayer is left in a difficult position, needing to justify why the exclusion from the exemption does not apply, and could end up paying both withholding tax and income tax on the same amount. Although there may be a right of recovery, this process is long and arduous. When SARS taxes the JSE-listed foreign dividends, the partial exemption7 would apply, limiting the income tax to 20%. Additionally, any potential foreign tax credit may also be applied if appropriate information is furnished to the taxpayer.

There is no ability to claim a rebate (referred to in section 64N of the Income Tax Act, discussed above) for the additional South African dividend withholding tax on the annual tax return, regardless of whether the dividend is treated as a taxable foreign dividend or as an exempt foreign dividend. However, a taxpayer may apply for a refund of any amount that has not correctly been reduced by the effect of the treaty in terms of section 64L or Section 64M. This claim for a refund must be made within three years, and the process can be lengthy.

When a JSE-listed foreign dividend is treated as a taxable foreign dividend and subject to the partial exemption with an effective tax rate of 20%, the taxpayer can claim a foreign tax credit of 15% on the year-end tax return. This means the taxpayer is still effectively paying an additional 5% that they would not have paid if the JSE-listed dividend were treated as exempt from income.


In some foreign jurisdictions, the gross amount of the foreign dividend withholding tax is withheld without considering the reduced rate under the relevant DTA. Taxpayers must apply to the revenue authority in the foreign jurisdiction to receive a refund of the excess portion withheld.

Regulated intermediaries appear, in some cases, to withhold the full 20% South African dividend withholding amount, even though a rebate should be granted for foreign withholding tax correctly withheld in the foreign jurisdiction.

In some cases, SARS has recently begun treating JSE-listed foreign dividends as taxable, despite that they should be exempt, unless the new exclusion to the exemption applies.

Taxpayers with queries or concerns regarding their JSE-listed foreign dividends should contact a tax advisor, particularly to recover foreign withholding tax that was withheld above the DTA reduced rate or to claim a rebate for SA dividend withholding tax that should have been offset by foreign withholding tax.

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1 SARS Quick Guide to Dividends Tax, page 6, point 10. (DT-GEN-01-G03) Revision 2.

2 Section 64N(5) of the Income Tax Act no 58 of 1962, as amended.

3 Section 64L of the Income Tax Act no 58 of 1962, as amended.

4 Section 64M of the Income Tax Act no 58 of 1962, as amended.

5 Explanatory Memorandum on the Taxation Laws Amendment Bill, 2023.

6 An IT3(b) is a tax certificate received from an institution, such as a bank, that summarizes, among other things, any local and foreign interest and dividends the taxpayer would have earned by having money invested with these institutions and it indicates the manner in which the respective income should be disclosed in the taxpayer's annual income tax return.

7 Section 10B(3) of the Income Tax Act no 58 of 1962, as amended.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Advisory Services (Pty) Ltd., Johannesburg

Ernst & Young Société d'Avocats, Pan African Tax — Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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