- 4 Marks
Question
In order to increase its stated capital, XYZ Ltd transferred an amount from its income surplus account. As a tax advisor, identify the types of taxes XYZ Ltd is exposed to on the above arrangement.
(4 marks)
Answer
A transfer from the income surplus account to stated capital is deemed a dividend distribution for tax purposes. XYZ Ltd will be exposed to the following taxes:
- Withholding Tax on Dividend:
- The company will be liable to pay withholding tax at the rate of 8% on the amount transferred from income surplus to stated capital, as it is treated as a deemed dividend.
- Stamp Duty:
- XYZ Ltd will also be subject to stamp duty on the increase in its stated capital at the rate of 0.5%.
(2 points for 4 marks)
- Tags: Corporate Tax, Dividend tax, Stamp Duty
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: NOV 2017
- Uploader: Dotse