In early April, the new Dividend Tax legislation came into force replacing the old Secondary Tax on Companies (STC), however, many companies are secretly complaining they have had little time to put into force the administrative changes and risk falling foul of the regulator with resulting penalties. The new legislation has been designed to align South Africa with international standards and best practice, where the benefits are clearly transparent.
In a nutshell, the onus falls on companies to pay 15% withholding tax on dividend payments to SARS and to account for those shareholder dividend payments, so as to reconcile the tax liabilities of investors and key stakeholders. If companies fail to do this, then they are likely to incur penalties and interest at a level set by SARS and as a result, non compliance with the new legislation can carry severe financial penalties.
One stockbroker, who wants to remain anonymous, says his company had been working on compliance with the new legislation for some time, but felt they were still a long way off before they become fully compliant. The company is stretched in meeting the requirements of the regulator, despite the law coming into effect in April. Initial research shows this stockbroker is not alone.
Companies must now have real tangible data on their shareholders together with their relevant tax numbers. However, while fine in principal, the fact remains the level of detail required now by SARS is no easy task, especially so when companies have not had the benefit of gathering all shareholder tax ID numbers and in some cases, as with BEE companies, many members do not even possess the relevant information to declare to SARS, or even worse, are at times frustratingly difficult to track.
Keeping shareholder data up to date is clearly no easy task. In the UK it is estimated that around £3-billion is owed to UK investors from unclaimed dividends and shares and a further £1-billion remain unclaimed by half a million people having benefited from windfall taxes including those of Scottish Life, Halifax Building Society, Friends Provident and Standard Life, to name but a few.
Trifecta Capital Services has implemented a raft of new internal procedures and services to assist companies with accurate tracing of shareholders, and obtaining relevant information now required by law. "Our tracing teams are experts at not only finding shareholders and their addresses, but also in ensuring that there is increased communication and information flows between our client companies and their key stakeholders," says Tim Marshall, CEO, Trifecta Capital Services.
"The more we are able to ascertain about the shareholder the better, which helps us to solve the timely and costly expense of gathering accurate information for those who receive dividend payments and in turn, keeps those companies on the right side of SARS and the law," he adds.
Complying with the new legislation need not be cumbersome providing companies are equipped internally with good IT and administrative processes. However, there's a growing number of South African companies who are looking to outsource such data collection, as in many cases, it's far more cost effective to do so.
Companies now have a legal requirement to pay withholding tax and to ensure there database does not fall foul of the law.
This will undoubtedly have an impact on changes to accounting practices and systems and indeed, may well have an impact on administrative fees charged to clients as a result. What could become a worrying trend in South Africa according to Trifecta Capital Services, is that companies end up with even more unclaimed entitlements and indeed tax submission rejections, due to missing details required under the new legislation.