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SARS Guides Non-Executive Directors On VAT Obligations

by Lorys Charalambous,, Cyprus

14 June 2017

The South African Revenue Service (SARS) has issued further guidance for non-executive directors (NEDs) on the tax treatment of the fees they receive.

The guidance is in response to several queries SARS has received regarding the VAT registration process. Since June 1, 2017, NEDs are required to register and account for VAT if their fees exceed the VAT registration threshold of ZAR1m (USD78,300) during the past 12 months.

SARS advised that the normal registration procedures must be followed, including for non-resident NEDs. NEDs must register as "sole proprietors" using the classification code 2572 for "other business services," it said. SARS has outlined the documents the agency will accept as proof of financial information, with specific instructions for non-resident NEDs.

Non-resident NEDs must register for VAT as normal but "will have to appoint a representative vendor in South Africa, [to control] the NED's affairs in SA or manage any enterprise of the NED in South Africa." They will also be required to provide South African bank account details.

The additional guidance follows a change in interpretation of the law by SARS. In February, it had issued two binding general rulings regarding the tax position of NEDs - BGR numbers 40 and 41. These set out that from June 1, 2017, NEDs would be regarded as "independent contractors."

This change meant that their fees would not be subject to deduction of pay-as-you-earn (PAYE) tax and would be classed as taxable supplies for VAT purposes from that date. SARS issued further guidance in May saying that all fees, including those that had been subject to PAYE, would be included in calculating if a NED's fees had exceeded the VAT registration threshold.

TAGS: South Africa | tax | business | proprietors | value added tax (VAT) | law | fees | contractors | services | Africa

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