1720. STC exemption
April 2009 – Issue 116
Until recently, dividends declared in anticipation of the liquidation, deregistration or winding up of a company out of pre-31 March 1993 profits (revenue and capital), or out of pre-1 October 2001 capital profits were exempt from Secondary Tax on Companies (STC).
The Revenue Laws Amendment Act, 2007 removed this exemption with effect from 1 January 2009. In terms of this amendment any such "liquidation" dividends that are declared on or after 1 January 2009 are subject to STC in full at the rate of 10%. This may have resulted in a number of companies with large reserves that qualify for the exemption, liquidating before 1 January 2009 in order to benefit from the exemption before it was repealed.
Fortunately, the Revenue Laws Amendment Act, No 60 of 2008 repeals the 2007 amendment. This means that the previous status quo will be restored, or quite simply, the exemption will remain.
As the 2008 Act was promulgated on 8 January 2009 this left a small window of uncertainty from 1 January 2009 to 8 January 2009 as to whether STC was payable or not.
In terms of the legislation, the STC liability arising from a dividend declaration is only payable at the end of the month following the month in which the dividend is declared. In terms of the legislation prior to the 2008 Act being enacted, if a liquidation dividend was declared between 1 January 2009 and 7 January 2009, STC at the rate of 10% would have been payable on the full declaration by 28 February 2009.
However as the 2008 Act amendment was effective from 1 January 2009, no STC will be due. If you thought you missed your opportunity to take advantage of the STC liquidation exemption which was going to end on 31 December 2008, there is no need to despair, as the exemption is once again effective.
Grant Thornton
Editorial comment: This concession is likely to remain available until the introduction of the new dividends tax which is expected towards the end of 2010.
