CATEGORIES
- (1) Negotiating Tax Debt and Payment Arrangements with SARS
- (14)Accounting
- (2)Accounting for Income Tax
- (7)Administration of Estates
- (1)Application of tax rates, s6(2) rebates
- (1)Assessed losses
- (4)Audit, Reviews & Other Services
- (9)Blogs
- (8)Capital Gains Tax
- (1)Capital Gains Tax - Individuals Tax
- (1)Capital Gains Tax Implications of Trusts
- (2)Case study: Home office expense
- (1)Case study: Travel allowances
- (1)Company Formations
- (117)Corporate Tax
- (9)Customs and Excise
- (2)Deceased Estate
- (1)Deductions Pre-trade and prepaid expenses
- (1)Deferred tax assets and deferred tax on equity
- (1)Deregistration
- (2)Employer and Employee (PAYE and UIF Specific)
- (1)Estate Duty
- (5)Faculty News
- (2)Farming
- (141)Individuals Tax
- (1)Input - Customs Duty
- (3)Interest
- (13)International Tax
- (17)Legislation
- (1)Low interest rate loans and loan subsidies
- (1)Nature of the rights of beneficiaries
- (1)Notional input tax
- (8)Payroll
- (2)Practical Payroll
- (2)Provisional tax (Link with other Taxes)
- (1)SARS Dispute Resolution
- (4)SARS Issues
- (1)Salaried Employees
- (126)Tax Administration
- (2)Tax Administration Part 2B: Resolving Problems with SARS using the Tax Ombud
- (1)Tax Administration Part 3B Dispute Resolution - Objection and appeal
- (2)Tax Update
- (2)Tax implications of loans to trusts
- (1)Tax residence
- (1)Tax returns and payments
- (1)Transfer-Pricing
- (1)Trust Income / Gain Allocations
- (1)Trust types and income allocations
- (5)Trusts
- (66)VAT
- (3)VAT periods
- (1)Wear and tear allowances
- (1)Zero Rated
- Show All
Common misconceptions: Tax treatment of directors' fees derived by non-resident
- 16 July 2020
- Individuals Tax
- Leani Nortje
Monday, 16 April 2018
Important:
This article is based on tax law for the tax year ending 28 February 2019.
Author: Leani Nortje (Webber Wentzel)
Many non-residents that derive directors' fees from a South African tax resident company believe that because they are non-resident and pay tax in their country of residence on such directors' fees they are not liable to tax in South Africa. This is a common misconception as non-residents remain taxable on South African sourced income (subject to tax treaty relief).
Section 9 of the Income Tax Act, 1962 (the Act) contains the legislated South African source rules. Where section 9 does not contain the source rules for certain types of income the rules are entrenched in South African common law. In this regard, the general rule with regards to services income is that the income will be regarded as being derived from a South African source if the services to which the income relates are rendered in South Africa. Another misconception is that this general rule similarly applies to income derived in respect of directors' services.
Due to the nature of directors' services which makes it difficult to ascertain the place where they perform their duties, the South African common law position with regards to director's fees is that the source of director’s fees is where the head office of the company is situated, irrespective of the place where the director resides and/ or performs the services.
The term "head office" is not specifically defined in the context of director's fees, but SARS interpretation note 6 which deals with place of effective management defines the term as "the place where a company's senior management and their direct support staff are located or, if they are located at more than one location, the place where they are primarily or predominantly located. A company’s head office is not necessarily the same as the place where the majority of its employees work or where its board typically meets". The interpretation note also notes that "members of senior management may operate from different locations on a more or less permanent basis. In these situations, the members may participate in meetings via telephone or video conferencing rather than by being physically present at meetings in a principal location. In these situations, the head office would normally be the location, if any, where the highest level of management (for example, the Managing Director and Financial Director) and their direct support staff are located." Although this interpretation of "head office" is not in the context of director's fees, it gives a good indication of SARS' interpretation of the term.
Click here to read more.
This article first appeared on webberwentzel.com.