South African REITs

South African Real Estate Investment Trusts (REITs) are companies that own and operate income-producing real estate properties. These properties can include office buildings, shopping centers, industrial warehouses, data centers, and apartment buildings.

In South Africa REITs are required to distribute at least 75% of their taxable income to investors in the form of dividends. This makes them an attractive option for income-oriented investors.

How to Invest in REITs in South Africa

There are three primary ways to invest in South Africa REITs:

1. Purchase shares of companies directly on the Johannesburg Stock Exchange.
2. Purchase shares of ETFs that hold South African real estate companies.
3. Buy into a fund (hedge fund) that invests in real estate.

How are South African REIT Dividends Taxed at the Shareholder?

Dividends tax is a tax imposed on dividends paid by companies to their shareholders. In South Africa, the dividends tax rate is 20% for individuals and trusts, and 7.5% for companies. The dividends tax is calculated on the gross amount of the dividends, before any deductions or credits. The company paying the dividends is responsible for withholding and remitting the dividends tax to the South African Revenue Service (SARS).

Dividends tax is not a final tax on dividends received by individuals. Instead, it is credited against the individual’s income tax liability. This means that the overall tax on dividends received by individuals may be less than 20%. The credit for dividends tax is calculated as a percentage of the dividends received, and is based on the individual’s marginal tax rate.

For example, if an individual’s marginal tax rate is 30%, the credit for dividends tax would be 6/11 of the dividends tax paid, which would be equal to 18.18%. So, the individual would pay 1.82% (20% – 18.18%) of the dividends received as dividends tax.

It’s worth noting that dividends received by pension funds and retirement annuity funds are exempt from dividends tax, as are dividends received by non-resident shareholders who are not tax resident in South Africa. Additionally, there is no double taxation of dividends received by companies.

Furthermore, REITs are required to distribute at least 75% of their income to unit holders in order to qualify for tax benefits, and for unit holders to claim the dividends tax credits.