THRESHOLD REGISTRATION REQUIREMENT FOR THE SKILLS DEVELOPMENT LEVY

a4_bWe have recently become aware of an increased level of audits being conducted by the South African Revenue Service in relation to taxpayers’ obligations in terms of the Skills Development Levies Act, 9 of 1999 (SDL Act). The focus appears to be specifically on non-compliant taxpayers who fail to register as required in terms of section 5 of the SDL Act, and thus for these employers to pay the requisite levy over to SARS. The problem is perhaps amplified thereby that the skills development levy is often considered an ‘unimportant’ tax by taxpayers (primarily due to it being less costly compared to, for example, VAT or income tax). Compliance with the SDL Act is therefore not a top priority to taxpayers, with the effect that taxpayers are also not apprised of their rights and obligations in terms of this Act when confronted by SARS to register and settle an ostensible skills development levy obligation.

The skills development levy (or SDL) is a levy upon employers required to register for SDL (see registration requirement below). It is levied at 1% of remuneration paid to employees during any month (which include directors of a company). The levy is thus also applicable to directors’ remuneration.

Even though directors’ remuneration is also subject to the SDL, what should not be forgotten, though, (especially in the context of what appears to be the focus of SARS’ audits) is that directors’ remuneration is excluded in terms of section 3(5)(e) from determining whether the threshold amount of R500,000 has been reached and which requires registration for SDL purposes (see section 4(b)).

As above, even though the threshold limit for registering for SDL is R500,000 of remuneration paid (or reasonably expected to be paid to employees in the coming 12 months), the R500,000 threshold amount is determined for private companies without having regard to any directors’ remuneration paid. Therefore, although the directors’ remuneration will be subject to SDL once the company is registered, it is ignored for purposes of determining whether a taxpayer is liable, and thus required to register, for SDL.

This is particularly relevant for SME’s conducting business through a private company, especially where remuneration is comprised largely of directors’ salaries. To give an example in illustration: assume a private company pays salaries to non-directors of R400,000, and R1,000,000 to the two directors of the company collectively. On these facts, the company need not register and pay SDL as non-director salaries amount to less than R500,000. Where the company, however, to pay salaries to non-directors of R600,000, then irrespective of the directors’ remuneration, the company would need to register for SDL and pay 1% per month on the total remuneration paid to all employees (including directors).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

IMPERMISSIBLE EXCHANGE CONTROL “LOOP STRUCTURES”

a3_bMany people or companies with offshore activities will be aware of the existence of exchange controls imposed by the South African Reserve Bank and monitored by its Financial Surveillance Department. Yet despite being aware of its existence, many do not appreciate what transactions are permissible and what would constitute a contravention of the exchange control regulations. In practice we often encounter such illegal structures, even though it may have been innocently created. One typical structure often encountered, and which the South African Reserve Bank considers to be illegal, is the so-called “loop structure”.

Loop structures in essence involve a resident in the common monetary area (comprised of South Africa, Namibia, Swaziland and Lesotho, “the CMA”) investing via loan or shares back into the CMA through an entity non-resident in the CMA. For example, a structure whereby an individual owns shares in a UK company which in turn holds shares in a South African company will amount to an illegal loop structure.

Share investments do not represent the only mechanism through which loop structures may be created: loans held back into the CMA through offshore entities, or even contingent rights created by way of a discretionary trust may also give rise to a loop structure. To give another example: if an individual is a discretionary beneficiary of an offshore trust, and which trust directly or indirectly holds loans receivable against or shares investments in South African companies, that too would be considered a contravention of the prevailing exchange control regime.

In other words: a loop structure would be created where a South African resident holds South African investments (in whichever form) indirectly through an offshore entity.

Although there is no blanket prohibition against all offshore investments which give rise to loop structures, the South African Reserve Bank is loath to approve these and take the view that any such structure created without seeking its prior approval amounts to an illegal structure. An exception which is noted though in the recently published Currency and Exchange Guidelines for Business entities (published by the Reserve bank on 29 July 2016) involves companies which may hold between 10 to 20 per cent of the shares in an offshore entity, which may in turn hold investments in and/or make loans back to the CMA. (This dispensation does not apply though to foreign direct investments where the South African company on its own, or where several South African companies collectively, hold an equity interest and/or voting rights in the foreign entity of more than 20 per cent in total.)

It is true that many people are completely unaware of the prohibition against loop structures and that these have inadvertently been created in the past without those involved being aware of the illegal nature thereof. If one were to voluntarily come forward and declare such an illegal structure though, taking also into account that the loop was inadvertently created, the Financial Surveillance Department may very well allow transgressing persons to unwind the unintended loop structure without levying penalties (which could otherwise amount to as much as 40% of the capital illegally exported from the CMA). It would be important for individuals and companies alike to be aware of these potentially illegal structures and to be sure that steps are taken to have these resolved as soon as possible. Given the newly introduced special voluntary disclosure programme (VDP) announced by National Treasury and which extends beyond tax transgressions only, it may now be an appropriate time to take steps to have such transgressions rectified.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TAX SEASON 2016: NON-PROVISIONAL TAXPAYERS’ DEADLINE

Many of our clients are not registered for provisional tax, nor are they required to be so registered. These non-provisional taxpayers should however take note thereof that their annual income tax returns (for the 2016 year of assessment which ended on 29 February 2016) are due shortly, and not only on 31 January 2017 as is the case for natural person taxpayers also registered for provisional tax.

All companies are automatically registered for provisional tax. Therefore, non-provisional taxpayers are typically individuals earning little or no income other than from a salary. These taxpayers therefore need to attend to their annual income tax returns with an increased sense of urgency to meet the looming deadline, which is 25 November 2016 for individuals filing returns by way of SARS’ eFiling system. (Those very few individuals who still submit returns manually should have filed their income tax returns by 23 September 2016 already.)

Government Gazette No. 40041 (dated 3 June 2016) identified those persons required to file annual income tax returns for the 2016 year of assessment. The primary exemption from the requirement to submit a return for tax resident natural persons is if the person earned only a salary from a single employer during the year which did not exceed R350,000, and income from interest for that person was also less than R23,800 (or R34,500 if the person is older than 65). The converse holds true though that if a person received income in excess of any of these amounts, they will be required to submit an income tax return for the 2016 tax year.

The Government Gazette also determines the dates by when the relevant persons are required to have submitted their returns by. Provisional taxpayers are annually afforded a slightly more lenient deadline to submit their income tax returns by as opposed to non-provisional taxpayers. This requires non-provisional taxpayers to be extra vigilant of the deadline to submit their annual income tax returns for the 2016 tax year by.

We therefore wish to remind our clients of their filing obligations with SARS and to contact us so that we may accumulate the information necessary to assist them in this regard. Failure to submit returns timeously may lead to penalties, as well as interest accruing on their accounts due to SARS. Administrative non-compliance penalties specifically will be levied if a person has more than one annual income tax return outstanding.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

DIVIDENDS TAX COMPLIANCE

Our clients will know that the dividends tax replaced the old Secondary Tax on Companies (“STC”) effectively 1 April 2012 already. Briefly, the STC was a tax on companies and calculated as a factor of dividends declared by that company. The regime was somewhat out of touch with international trends though (which also gave rise to certain anomalies when South Africa negotiated double tax agreements with other countries): the international norm is rather what we have in South Africa today too, being a tax on shareholders (as opposed to the dividend declaring company) and which tax is withheld from payment of dividends to the shareholders. The dividends tax is levied at 15%. By way of an example therefore, if a person (not exempt from the dividends tax) were to receive R100 in dividends from a South African company, that company will only pay R85 to the shareholder, and R15 would be withheld and paid to SARS on the shareholder’s behalf.

Although in our experience most of our clients exhibit an understanding of how the dividends tax regime operates, many of our corporate clients appear to be unaware of their filing obligations which go hand-in-hand with both dividend declarations as well as dividends received. Companies are required to file a dividend tax return when declaring a dividend (section 64K(1A)), but persons are also required to file a return if they receive a dividend exempt from the dividends tax. Since generally all South African tax resident companies are exempt from the dividends tax, this will effectively translate into South African tax resident companies having to file dividends tax returns for all South African dividends which they receive too.

The necessary dividends tax returns (the SARS DTR01 and DTR02 forms) are required to be filed by the end of the month following the month during which the relevant dividend was paid/received. The dividends tax payment (where relevant) should accompany said return.

Therefore, even if a company only pays and receives dividends none of which are subject to the dividends tax the exempt taxpayer is still obliged to file the requisite returns. The returns are also not the only compliance requirement to be observed: where a shareholder relies on a double tax agreement in terms of which a reduced dividends tax rate is to be applied (as opposed to the statutorily imposed 15% applicable domestically), or that person is exempt from the dividends tax altogether, that shareholder must inform the company of this status by way of a declaration made, together with an undertaking that the shareholder will inform the company should the status of the aforementioned change in future. In the absence of such a declaration, the company must still withhold dividends tax even if the shareholder is objectively speaking exempt from the dividends tax.

As one will no doubt realise, non-observation of the relevant dividends tax compliance requirements – even if they do appear to be somewhat trivial and admittedly not practically heavily policed by SARS – one ignores these requirements at one’s own peril. In this instance non-compliance may have a significant impact if a taxpayer is upon investigation found to be wanting in this regard.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)