Further clarification on the VAT registration of non-executive directors

Further clarification on the VAT registration of non-executive directors

• 19 December 2019
• VAT periods
• Jerome Brink

Monday, 22 May 2017

Important:

This article is based on tax law for the tax year ending 28 February 2018.

Author: Jerome Brink

On 10 February 2017, SARS published Binding General Ruling 40 (BGR 40), in addition to Binding General Ruling (BGR 41) that was referred to in the article above (Rulings). We initially reported on these Rulings in our Tax and Exchange Control Alert of 17 February 2017. BGR 40 dealt with the manner in which non-executive directors (NEDs) should account for tax on their earnings as directors from an employees’ tax (PAYE) perspective, while BGR 41 dealt with the VAT consequences of NEDs’ earnings. While the Rulings provided much needed clarity on various interpretational issues, there were still one or two practical issues, which were not covered. In particular, the Rulings did not provide clear guidance on the manner in which companies and NEDs should have dealt with the taxation of their earnings prior to 1 June 2017. SARS therefore subsequently issued a separate media release on 17 February 2017 setting out further practical guidance.

BGR 40 dealt with the manner in which non-executive directors (NEDs) should account for tax on their earnings as directors from an employees’ tax (PAYE) perspective, while BGR 41 dealt with the VAT consequences of NEDs’ earnings. While the Rulings provided much needed clarity on various interpretational issues, there were still one or two practical issues, which were not covered. In particular, the Rulings did not provide clear guidance on the manner in which companies and NEDs should have dealt with the taxation of their earnings prior to 1 June 2017. SARS therefore subsequently issued a separate media release on 17 February 2017 setting out further practical guidance.

The 17 February 2017 media release provided, among other things, as follows:

Previously NEDs were subject to employees’ tax because the directors’ fees received for services rendered were considered remuneration. However, due to amendments made in 2007 to the exclusions to the definition of “remuneration” in the Fourth Schedule to the Income Tax Act, No 58 of 1962, there was uncertainty as to whether the amounts payable to a NED were subject to the deduction of PAYE.

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This article first appeared oncliffedekkerhofmeyr.com.

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