ARTICLE · 04 APRIL 2012

Loans To Shareholders And Deemed Dividends

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It was announced in the 2012 budget speech of the Minister of Finance, Pravin Gordhan, on 22 February 2012 that the taxation of dividends will be increased from the current 10% secondary tax on companies ("STC") to a 15% dividend withholding tax with effect from 1 April 2012.

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Silke Bovijn

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It was announced in the 2012 budget speech of the Minister of Finance, Pravin Gordhan, on 22 February 2012 that the taxation of dividends will be increased from the current 10% secondary tax on companies ("STC") to a 15% dividend withholding tax with effect from 1 April 2012. Draft legislation confirming this proposal has now been released.

The transition from STC to dividends tax has brought about changes in respect of, amongst others, deemed dividends. Under the STC regime, the general principle is that a loan granted by a company to a shareholder or a connected person in relation to the shareholder is deemed to be a dividend which is subject to STC at a rate of 10% calculated on the principal amount of the loan, subject to certain explicit exemptions.

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