Loans between companies and their shareholders, or other group
companies are a common method of providing finance in the South
African corporate environment. Loans of this nature may, however,
give rise to tax implications in the hands of the lender or the
recipient, and careful consideration should therefore be given to
these transactions.
Dividends tax
Dividends declared by a company to its shareholders up until 31
March 2012 were subject to secondary tax on companies
("STC") at a rate of 10%. The Income Tax Act, No. 58 of
1962 ("the Act") also contains provisions designed to
circumvent tax avoidance transactions that enable the shareholder
of a company to benefit in some way even though no cash dividend
was actually declared. Under these provisions, certain types of
transactions gave rise to deemed dividends with the result that STC
became payable, subject to certain exemptions.
