FOREIGN DIVIDENDS DEF OF FOREIGN DIVIDENDS GROSS INCOME – para (k) EXEMPT DIVIDENDS Section 10(1)(k)(ii) o PROFITS TAXED IN SA - (aa)(A) - EXCEPTION
o FROM DIV DEC BY RESIDENT (aa)(B) o >10% IN A DUAL LISTED CO – (bb) o CFCs – (cc) o 20% SHAREHOLDING – (dd)
FOREIGN DIVIDENDS RESIDENT HOLDS 50% OF A CFC. 2007
2008
R
R
CFC NET INC before tax TAX @ 30% PROFIT after tax
3 000 (900) 2 100
2 000 (600) 1 400
DIVIDEND PAID
1 000
3 000
RESIDENT s9D 50% OF Net Income DIVIDEND RECEIVED
1 500 500
1 000 1 500
EXEMPTION Computed as follows: s9D INCLUSION LESS: FOR TAX DIVIDENDS EXEMPTION
(500)
(1 250)
1 500 (450) 1 050
2 500 (750) (500) 1 250
LIMITED TO DIV REC
(500)
(1 250)
FOREIGN DIVIDENDS o S23(f) – NO DEDUCTION UNLESS AMT COSTITUTES INCOME o S11C Interest Incurred on ‘Foreign Dividends’ o S11C(1) – allows a deduction of interest
actually incurred in the production of ‘foreign dividends’ o S11C(2) - the interest deduction is limited to the amount of ‘foreign dividends’ that are included in the income of the TP o S11C(3) - excess interest must be reduced by the exempt ‘foreign dividends’ - balance must be carried forward to the immediately succeeding year of assessment.
FOREIGN DIVIDENDS
Q 9.21
EXAMPLE
The following amounts accrued to a resident: Taxable foreign dividends (own funds) Exempt foreign dividends (own funds) Taxable foreign dividends (borrowed funds) Exempt foreign dividends (borrowed funds)
4 500 1 500 30 000 3 000
Incurred incurred on borrowed funds R54 000.
Foreign dividends Less exempt foreign dividends (s10(1)(k)(ii)) Taxable foreign dividends Less ‘basic’ foreign dividend exemption (s 10(1)(i)(xv)))
Own funds
Borrowed funds
Total
6 000 1 500
33 000 3 000
39 000 4 500
4 500 417
30 000 2 783
34 500 3 200
4 083
27 217
31 300
Less ‘deductible’ interest of R44 537 (R27 217/R33 000 X R54 000) ( s23(f )) - Limited to s11C(2)
(31 300)
Carried forward to the next y o a ‘Deductible’ interest incurred Less foreign div included in income Less ‘exempt’ for div (R4 500 + R3 200) Deemed int incurred in the next y o a
44 537 31 300 13 237 7 700 5 537