Dividend taxes will soon be shifted from the company - which presently bears it in the form of Secondary Tax on Companies (STC) - on to shareholders in the form of a 10 percent withholding dividend tax.

"The most recent indications from National Treasury are that the change-over will happen in late 2010," tax consultant Marcel Buys said.

He said it had been widely acknowledged that the initial delay in the effective date from 2008 to 2009 was because of the need to first amend certain of South Africa's double taxation treaties.

The further delay to late 2010 had fuelled speculation about the SA Revenue Service's (Sars) internal systems and its ability to administer the new tax.

"However, it must be said that the delay has certainly created more space for public consultation - which is appropriate given the significance of this change and for a more thorough consideration by National Treasury of potential tax-avoidance opportunities."

Buys said that a long-standing regime of STC had protected the shareholder from both reporting duties and the actual tax burden.

"The company declaring the dividend had to pay the STC to Sars as STC has always been a tax on the distributing company - not on the recipient shareholder."

Section 10 (1)(k)(i) presently exempts South African dividends from being taxed in the hands of individual shareholders, as the South African company pays a 10 percent secondary tax on all dividends it distributes to its shareholder.

"Thus if a company has profits available for distribution of R1.1 million, it typically declares a R1 million dividend and will pay R100,000 in Secondary Tax (10 percent of the R1 million)."

Buys said in this case the company was R1.1 million poorer and the shareholder R1 million richer.

"But now the Revenue Laws Second Amendment Act 61 of 2008 Part IIIV eliminates STC and establishes a 10 percent dividend tax - and this amendment has been received with mixed responses."

Buys said former finance minister Trevor Manuel saw the change as a step in the right direction and in line with how the rest of the world taxed dividends.

The most significant change in legislation was that the shareholder who was receiving the dividend would be taxed - not the company that distributes the dividend.

"So under the new regime, if a company has R1.1 million of available profits it can declare the full R1.1 million as a dividend - it will then withhold 10 percent tax from every shareholder's portion, the total amount being R110,000.

"The company is still only R1.1 million poorer, the same as previously where STC was paid by the dividend-declaring company."

Buys said the shareholder would actually receive an amount of R990,000 in dividends.

"This example reflects the investor is now R10,000 poorer in dividends received," he said.