SARS’ new plan to get more tax money
The South African Revenue Service (SARS) has cast its tax net wider, as agreements that previously favoured Kuwaiti, Dutch and Swedish shareholders are now being revised.
Sovereign Trust managing director Ralph Wichtmann explained that South Africa implemented a withholding tax on dividends in 2012.
In short, a withholding tax on dividends is a tax that a company deducts from the dividend payments it makes to its shareholders.
In 2012, the broad requirement of this tax was that all foreign shareholders who earned dividends from South African-owned companies would be taxed on these earnings.
However, he said the 2004 double tax agreement (DTA) between South Africa and Kuwait granted complete exemption to Kuwaiti shareholders.
Dutch and Swedish shareholders have enjoyed exemption through ‘most favoured nation’ (MFN) clauses in their DTAs with South Africa.
A DTA is a treaty between two countries to prevent individuals and businesses from being taxed twice on the same income, profits, or gains.
These agreements typically promote cross-border trade, investment, and economic cooperation by clarifying and harmonising tax obligations between the two nations.
Similarly, an MFN clause is a provision often included in treaties to ensure that a country receives treatment that is as favourable as the treatment granted to any other country in a similar agreement.
However, these three nations’ exemptions were addressed by the recent implementation of a new protocol.
South Africa and Kuwait signed this protocol in December 2019 and April 2021, respectively, and Kuwait ratified it on 18 September 2024.
In terms of this new protocol, Kuwaiti, Dutch and Swedish companies that are beneficial owners of South African companies and which hold at least 10% of the capital of these South African subsidiary companies are now subject to dividends tax of 5%.
Companies that hold less than 10% of the capital are now required to pay a 10% dividend tax.

SARS published these changes on 22 November 2024 and they have been implemented from 2 October 2024.
However, Wichtmann said SARS made the controversial ruling to apply the protocol retrospectively to 1 April 2012.
“It is expected that this aspect will be challenged in court as it goes against the well-established tax principle that advocates against amendments to agreements being backdated,” he said.
“It also flies in the face of 2019 legal agreements confirmed by the Dutch Hoge Raad and a Cape Town Tax Court, which safeguarded tax exemption for Dutch and Swedish shareholders as defined above.”
“At the time, both courts ruled in favour of the taxpayers.”
Wichtmann explained that DTAs exist to regulate and ensure fair cross-border taxes and that the implementation of the 2021 protocol will result in increased tax inflows benefiting South Africa’s economy.
However, he warned that the protocol will significantly reduce the attractiveness of cross-border transactions with South Africa for Kuwaiti, Dutch and Swedish companies.
“With the introduction of these new dividends tax rates, Kuwaiti, Dutch and Swedish shareholders face increased tax liabilities on dividends paid by South African subsidiary companies,” he said.
“We advise all businesses and investors that will be affected to reassess their tax positions and existing investment structures to ensure compliance with these new provisions.”
This move is likely part of a broader compliance drive from SARS, motivated by the authority’s need for additional tax income.
South Africa’s economic challenges, including a 32% unemployment rate, mean that the country’s tax base is very small.
SARS’ latest Tax Statistics report revealed that 1,660,182 people pay 76.2% of all personal income tax.
Considering that South Africa has around 64 million people, this means that only 2.6% of people pay most of the country’s personal income tax.
The economy and job creation are not growing at a fast enough pace to meaningfully increase the country’s tax base.
In addition, the government has announced several plans to implement new initiatives, like National Health Insurance and a Basic Income Grant, which are set to cost taxpayers billions.
Therefore, SARS has been forced to explore every avenue to increase the country’s tax revenue.
This has included reconsidering cross-border tax sources, like the agreement with Kuwait.
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