Dividents Versus Returns of Capital made by Companies

Not all distributions made by companies to their shareholders constitute dividends for purposes of the Income Tax Act No. 58 of 1962. To the extent that a distribution made by a company reduces the “contributed tax capital” (a concept defined with reference to inter alia the subscription consideration received by the company on the issue of shares) of a company, such would may give rise to a “return of capital” as opposed to a dividend.

The table below highlights some of the tax implications arising in respect of a cash distribution constituting a dividend as opposed to a return of capital made by a South African company to a South African shareholder.*

* Please note that we have not included the compliance aspects which are to be attended to by the company and/or shareholder in this regard.