Tax and SARS knowledge base
What tax arises when a company declares a dividend in specie?
What should a company check before declaring a non-cash dividend?
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Direct answer
A dividend in specie is a distribution of an asset rather than cash. SARS states that when a dividend consists of an asset in specie, the dividends-tax liability falls on the company. This differs from the ordinary practical situation in which a company withholds dividends tax from a cash amount paid to a shareholder. The company should confirm the current rate, any exemption or reduced-rate documentation, the value of the asset and every other tax consequence before it transfers the asset.
The distribution should not be treated as a simple change in ownership. It can involve company-law approvals, a value determination, asset-transfer documents, dividends tax, capital gains tax or recoupments, VAT, transfer duty, securities transfer tax and accounting effects. The tax result depends on the asset and facts.
What this means in practice
Companies may distribute a property, vehicle, investment, loan claim, shares, inventory or other asset to a shareholder. A non-cash asset gives the company no cash from which to pay tax. This makes planning vital. The company needs to calculate or obtain advice on its liabilities and ensure it can pay them without relying on an informal shareholder arrangement.
The board should identify the asset precisely and obtain a supportable value. Book value may not represent the relevant tax or market value. A valuation should be dated, explained and retained with the declaration record, especially for property, unlisted shares, intellectual property or connected-person transfers.
Step-by-step
- Identify the proposed dividend. Record the company, shareholder, asset, legal title, market value, tax value, financial-statement value and the intended declaration and transfer dates.
- Confirm corporate authority. Prepare board and, where needed, shareholder resolutions in accordance with the company constitution and law. The resolution should describe the asset and recipient clearly, not use a generic label.
- Review dividends tax. SARS says liability for a dividend in specie falls on the company. Confirm the current returns, payment date, rate, exemptions and declarations with a tax adviser. Do not assume that a shareholder exemption applies without the required documentation.
- Review taxes other than dividends tax. Determine whether the company has a capital gain, recoupment, VAT consequence, transfer-duty exposure or another tax result from transferring the asset. Review the shareholder's position too, but do not conflate it with the company's liability.
- Value and transfer the asset. Retain the valuation, asset register, legal transfer document, property or share registers and proof of implementation. Align the accounting entries and tax records with the effective transfer date.
- File and retain evidence. Keep the dividend declaration, return, payment proof, exemption documents, tax computations and correspondence in a single controlled file. A later sale of the asset may require the records.
Important limits and exceptions
This guide does not calculate dividends tax or decide an exemption, rate or valuation. It does not determine the tax consequence for a specific asset. Property, foreign shareholders, loans, connected persons, listed shares and assets with allowance histories need tailored review.
When to get tailored advice
Obtain legal, corporate-tax, VAT and valuation advice before declaring a material asset dividend. TaxProof can help prepare a distribution file and SARS submission checklist. We cannot confirm the tax treatment without the full transaction.