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argentum

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Tax on foreign share dividends
« on: January 10, 2019, 09:42:04 am »
Hi All,

How are dividends on foreign shares taxed by SARS? I'm talking about completely foreign companies and ETFs, brokered through an offshore broker in USD, not dual listed shares. It's difficult to pin down the rules, because the web is full of old or inconsistent information.

One example I saw goes like this:
R100 000 foreign dividends received.
- 26/41 * R100 000
= R36 585 added to personal income tax taxed at income rate (typically 40 %)

Questions:
  • Is there a dividend withholding tax (typically 15%-20%) levied in the foreign jurisdiction on the R100 000 before it hits my account? So do I pay double taxes?
  • How do I convert USD to ZAR? Average over the year or at the date of declaration
  • Are there any foreign tax credits I can use? The ITR12 SARS form seems to suggest so.
  • How does SARS calculate foreign dividend exemptions? See attached shot of ITA34 section
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Orca

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Re: Tax on foreign share dividends
« Reply #1 on: January 10, 2019, 12:52:37 pm »
It is impossible to give you correct answers as we don't know where your money is invested. You would have to look at the Double Tax Treaties of each country.
Some countries have a Withholding Tax on Dividends and Interest and some don't. The UK for instance does not and the US does.

You would also have to read up in the DTA if the Dividends Withholding Tax is capped at a certain percentage. Most are capped at 15%. Chances are that your foreign broker will not apply this cap is a given. You have to inform them yourself.

If you are invested in the US then it would get complicated. The US does not have the normal 10 page Tax Agreements but they have a pdf book that instructs other countries on how to treat them and how they will reciprocate in cross border taxation. I have no intention to spend a whole day reading it as it does not concern me. Patrick will have some input for you as he has investments in the US.

You can use the yearly average price or the closing price on the day the money is made available to you. Here is a link to the European Central Bank for prices on any particular day. https://www.bportugal.pt/conversor-moeda
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Patrick

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Re: Tax on foreign share dividends
« Reply #2 on: January 10, 2019, 01:36:01 pm »
How are dividends on foreign shares taxed by SARS? I'm talking about completely foreign companies and ETFs, brokered through an offshore broker in USD, not dual listed shares. It's difficult to pin down the rules, because the web is full of old or inconsistent information.

Read this: https://investorchallenge.co.za/pay-less-dividend-tax-by-doing-this-one-thing/

Questions:
  • Is there a dividend withholding tax (typically 15%-20%) levied in the foreign jurisdiction on the R100 000 before it hits my account? So do I pay double taxes?
With a US ETF it's yes, 15%. Irish ETFs are exempt but there's still tax leakage inside the fund, so the real answer is always yes.
  • How do I convert USD to ZAR? Average over the year or at the date of declaration
SARS gives you the option. Either they have a year average you can use, or you can use the daily for then the divvie was paid. I use the average.
  • Are there any foreign tax credits I can use? The ITR12 SARS form seems to suggest so.
Yes, as long as you have documentation that it was withheld from the broker to you. I tried to do this with my Irish ETF by calculating the tax internally withheld and failed.
  • How does SARS calculate foreign dividend exemptions? See attached shot of ITA34 section
25/45 * dividend amount is exempt currently.

None of this is to be considered advice. Talk to a decent tax guy so you don't end up caught out like me last year! My next blog posts will have more details.
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argentum

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Re: Tax on foreign share dividends
« Reply #3 on: January 10, 2019, 02:55:48 pm »
Quote from: Patrick on January 10, 2019, 01:36:01 pm
None of this is to be considered advice. Talk to a decent tax guy so you don't end up caught out like me last year! My next blog posts will have more details.

Thanks Patrick! You're just a fountain of financial info  ;D Looking forward to your next blog post.
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