South Africa has always used a source-based taxation system, although the numerous deeming provisions mean that in effect the system is a hybrid of source and residence base. Earlier this year the Minister of Finance announced his intention to move to a fully residence-based system, the first step of which was the introduction of tax on foreign dividends with effect from 23 February 2000.
Foreign dividends accruing to residents have formed part of their gross income since that date, unless they emanate from one of a list of 27 "designated" countries (see below) and the shareholding of the resident in the company paying the dividend exceeds 10%. If the income of the paying company is itself taxable in the Republic, provisions are in place to ensure that double tax does not occur. Any foreign taxes paid on the dividend will be allowed as a credit, up to the amount of the South African tax on the dividend.
