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VAT on non-executive director remuneration: More questions than answers?
- 06 May 2020
- Tax Administration
- Gerhard Badenhorst
Monday, 22 May 2017
Important:
This article is based on tax law for the tax year ending 28 February 2018.
Author: Gerhard Badenhorst
The South African Revenue Service (SARS) has ruled in Binding General Ruling (BGR 41), issued on 10 February 2017, that non-executive directors (NEDs) should register and account for VAT on their directors’ fees where the fees exceed the VAT registration threshold of R1 million in a 12-month period, as they are not considered to be common law employees but independent contractors. BGR 41 was made effective from 1 June 2017.
On 4 May 2017 SARS issued an updated BGR 41 in which it determined, in terms of s23(4)(b) of the Value Added Tax Act, No 89 of 1991 (VAT Act), the VAT registration liability date of NEDs to be 1 June 2017. BGR 41 further clarifies that where NEDs are already registered for VAT but have neither levied nor accounted for VAT on their directors’ fees, they must start charging and accounting for VAT on such fees by no later than 1 June 2017.
The appointment of a director, including a NED, is a statutory appointment in terms of the Companies Act, No 71 of 2008 (Companies Act) and the role, function and duties of directors are prescribed by the Companies Act. The question remains as to whether a NED, in merely performing his or her statutory duties, indeed carries on an “enterprise” as that term is defined in the VAT Act, for which the NED is required to register for VAT. Nevertheless, in view of the SARS ruling, a NED who receives director’s remuneration in excess of the R1 million VAT registration threshold will be required to register and account for VAT with effect from 1 June 2017 in accordance with BGR 41 or risk being held liable for the VAT, penalties and interest, until a court may rule otherwise.
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This article first appeared on cliffedekkerhofmeyr.com.