Recipient will be taxed on worldwide income but what rate does dividend attract if rom source outside RSA?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
The tax that may be charged by Botswana, must not exceed:
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds at least 25 per cent of the capital of the company paying the dividends; or
(b) 15 per cent of the gross amount of the dividends in all other cases.
This is in terms of paragraph 2 of Article 10 of the treaty (that we referred to). This only applies if “the beneficial owner of the dividends, being a resident of a Contracting State (the RSA), carries on business in the other Contracting State (Botswana) of which the company paying the dividends is a resident, through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment.”
If we accept that the RSA resident holds less than 10% of the shares in the Botswana company, the effective rate of tax on the foreign dividend will be 20%, due to the section 10B(3) exemption. The tax withheld un Botswana will reduce the amount due to SARS as it qualifies as a section 6quat rebate.