Page 98 - P6 Slide Taxation - Lecture Day 7 - Various Topics

Unilateral reliefs

Exemption of certain foreign dividends and capital gains
• Dividends derived from an substantial stake in a foreign company qualify for the

participation exemption (s 10B(2)( a ) – see chapter 5). This exemption is aimed at
ensuring that South African investors are not discouraged from bringing foreign
dividend income back to South Africa, where they have sufficient influence in the

affairs of the foreign company to do so.
• Over the years, the threshold for this exemption has decreased from a 25%
interest in the foreign company to the current requirement of 10% equity
shareholding and voting rights in the foreign company. This exemption is mirrored

to some extent by an exemption of capital gains on certain disposals of the shares
in foreign companies (par 64B of the Eighth Schedule – see chapter 17).
• Further exemptions exist for foreign dividends that have already been subject to

tax in South Africa, whether through the controlled foreign company rules (see
21.7) or dividends tax (see chapter 19).
• All other foreign dividends are subject to income tax in South Africa at a reduced

rate. The reduced rate aims to align the tax implications of these foreign dividends
with those of domestic dividends that are subject to dividends tax (s 10B(3) – see
chapter 5 in silk).

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