Nwanda Tax & Legislation Update Quality delivery

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1 Nwanda Tax & Legislation Update 2013

2 Programme 08h45 09h30 Registration & Refreshments 09h30 09h35 Welcoming Address by Brian Neale 09h35 11h00 Presentation Bob Borrill Roy Macpherson Jessica Southgate Malyssa Hattingh

3 Bob Borrill 1. Overview of the fiscal landscape 2. Retirement reforms 3. Employer owned/funded insurance policies 4. Restriction on deduction of Payroll Accruals 5. Deduction for leasehold improvements 6. New VAT issues 7. Dividend Withholding Tax 8. New company tax returns

4 Slide Who pays the tax? Who pays the tax? 1. Overview of the fiscal landscape Who pays the tax? Individuals 38% Corporates 21% VAT 30% Other (e.g. fuel levy & custom duty) 11% Total 100%

5 Bearing the burden Bearing the burden Who Pays What (2012) TAXPAYERS TAX BRACKET NUMBER % Below > TOTAL Source: National Treasury

6 Bearing the burden 2012/2013 Revenue shortfall Actual to budget Shortfall R16 Billion

7 SARS robust approach The pressure to collect has led SARS to adopt a robust approach. SARS bully taxpayers with actions that are often unconstitutional.

8 2. Retirement reforms The reform proposals are a work in progress. Likely to come into effect on or after Reforms will harmonise the tax treatment of contribution and benefits from pension, provident and retirement annuity funds.

9 Retirement Contributions (proposed reform) Employer contributions to all funds will constitute a fringe benefit to employee. Employees will receive a tax deduction for employee and employer contributions to pension, provident and retirement annuity funds. Deduction will be 27,5% of the greater of remuneration and taxable income (excluding RA or lump sum income). Annual cap of R350,000 excess contributions carried forward to future years or exempt from tax on retirement.

10 Provident funds (proposed reform) From implementation date members of provident funds will be compelled to utilise 2/3 of their benefits to buy an annuity. Requirement will not apply to members older than 55 on implementation date. Existing balances in provident funds and the growth on these balances will not be required to be taken as annuities. Commutation threshold to increase from R75,000 to R150,000.

11 3. Employer owned/funded insurance policies Income Continuation Benefits Effective 1 March Employer premiums on these policies are a fringe benefit to the employee. The employer is granted a deduction under Section 11(w) for contributions made to the scheme. Employee will be allowed a deduction equal to the fringe benefit. Any benefit under these policies is taxable in the hands of the employee.

12 Group Life/Capital Disability/Severe Illness Cover Effective 1 March Employer premiums on these policies are a fringe benefit to the employee. The employer is granted a deduction under Section 11(w). Any benefit paid out under these schemes are tax free.

13 4. Restriction on the deduction of Payroll Accruals Leave pay/overtime pay/commission/bonuses/travel reimbursements. Payment date is the date on which o Included in employees gross income o PAYE liability to be determined o Employer is entitled to a deduction. Effective 1 March 2013.

14 5. Deduction for leasehold improvements Tenant improvements to commercial buildings The lack of tax allowances on improvements available to commercial tenants is complicating commercial arrangements. Proposed that a possession and use test will replace the ownership test. Amendments to the taxation of the lessor and treatment of leasehold improvements will be effected.

15 6. New VAT Issues Budget proposals Registration of foreign business in e-commerce space. Time of supply consideration dependant on contingent future event earlier of date of payment or invoice. Body Corporate exempt from VAT, HOA not exempt from VAT proposal to exempt HOA. Indirect exports by road proposed legislative amendments.

16 VAT Amendments promulgated The deemed input VAT on second-hand fixed property previously limited to the amount of transfer duty paid limit removed effective 10 January The threshold for an abridged tax invoice supplied by a vendor increased from R3,000 to R5,000. TAA caused confusion as to the date the VAT return needed to be filed if electronic payment is made on the last day of the month. Amendment made that deems the return and payment to have been made on 25 th if return and payment made electronically on last day of the month.

17 7. Dividend Withholding Tax Amendment requires that a dividend tax return must be filed when a dividend is paid, even if no withholdings tax is due. No or reduced Dividend Tax withheld the beneficial owner to submit both a declaration and a written undertaking. The DTR01 and DTR02 are complex forms that require full details of recipients of the dividends and STC credits claimed against the Dividends Tax detailed record keeping is essential.

18 Dividend Withholding Tax some reminders STC credits will be valid for 5 years from 1 April Loans to Shareholders (debit loan accounts) o Deemed dividend calculated at the interest payable on the loan at official rate of interest less any interest paid. o Deemed dividend deemed to have been paid on last day of the year.

19 Effective corporate tax rate under STC regime Effective tax rate under DWT regime Description Tax rate Rand Tax cost Profit Income tax 28% Profit after tax Dividends tax 15% Net profit after tax & dividend tax Total tax cost 38.80

20 Salary or Dividends? The marginal tax rate of 40% for individuals is effective on taxable income exceeding R638,600. The bracket between R500,941 and R638,600 attracts tax at a rate of 38%. The arbitrage is all but disappeared. Should you declare dividends?

21 8. New company tax returns (ITR14) A separate return needs to be completed in order to maintain legal entity details. Return will be generated based on the specific information relating to the company. Signed Annual Financial Statements need to be submitted with the income tax return.

22 Roy Macpherson 1. Section 24O Interest on debt to acquire certain shares 2. Proposed measures to limit the deduction of interest 3. Interest-free (or low-interest) loans 4. Debt reductions 5. Tax-preferred savings and investment vehicles 6. Bursaries given to employees and their relatives

23 7. Amendment to exemption when working offshore 8. Withholding tax on interest 9. Trust reform 10. Capital allowances 11. Government grants 12. Medical aid deductions 13. IT14SD forms

24 1. Section 24O Interest on debt to acquire certain shares Previously interest incurred on debt to acquire shares was not taxdeductible, as not in the production of income (dividend income is tax-free). From 1 January 2013 deduction will be allowed for interest if : Acquisition transaction entered into on or after 1 January 2013; Debt used to acquire a controlling share interest; and The target company acquired must be an operating company. Need a directive from SARS.

25 2. Proposed measures to limit the deduction of interest Artificial debt to be treated as shares with interest deduction disallowed. Relates to debt instruments that do not have a realistic possibility of being repaid in 30 years, or debt that is convertible into shares at the request of the issuer. Limits to be placed on interest on connected party debt if the interest income is not taxable. Interest expense only deductible up to 40% of earnings after interest on other debts is taken into account. Excess interest expense will be allowed to roll over for up to five years.

26 2. Proposed measures to limit the deduction of interest (continued) Interest on excessive debt for acquiring a business will be allowed to roll over for up to five years. Interest paid to foreign connected parties was limited in terms of the 3 to 1 debt to equity ratio. Could be replaced by another interest expense limitation rule based on a percentage of taxable income.

27 3. Interest-free (or low interest) loans Any loan by a company to a directly or indirectly connected person, that is a resident but not a company, is at risk of dividend withholding tax. The amount of the dividend that is deemed to have been paid is the marketinterest not charged (less any interest that is charged).

28 4. Debt reductions Previously all reductions treated either as a recoupment or as a capital gain. From 1 January 2013, relief from recoupment or capital gain: If reduction is subject to donations tax, estate duty or fringe benefits tax; If reduction reduces the cost of trading stock or the base cost of capital assets (applies when the debt was used to acquire such assets). Certain debt reduction amongst connected parties in the course of liquidation to get relief from capital gains tax as well.

29 5. Tax-preferred savings and investment vehicles The annual interest exemptions from 1 March 2013 are: Persons under the age of 65 R23,800 Persons 65 years and older R34,500 The new tax-preferred vehicles will be introduced by April 2015; Individuals will be able to contribute R30,000 per annum in two types of vehicles (that must be registered with SARS): Interest bearing accounts which may invest in bank deposits or bonds; Equity accounts which may invest in JSE shares or property.

30 5. Tax-preferred savings and investment vehicles (continued) The contributions are not tax-deductible. All the returns (interest, dividends and capital gains) and withdrawals will be tax exempt. A R500,000 lifetime limit is proposed (to be adjusted for inflation). Taxpayers aged 45 to 49 can invest up to 25% of their lifetime limit; Taxpayers aged 50 to 59 can invest up to 50% of their lifetime limit; Taxpayers aged 60 and older can invest up to 100% of their lifetime limit. The annual interest exemptions are likely to continue but possibly at half the current amounts.

31 6. Bursaries given to employees and their relatives Tax-free to the employee if the employer is reimbursed on non-completion of studies. No monetary thresholds. Monetary thresholds for bursaries given to relatives of employees to be increased: Employee can now earn less than R200,000 per annum (previously R100,000); Bursary amount limit increased to R30,000 for higher education (per relative); Bursary amount remains at R10,000 for basic education (per relative).

32 7. Amendment to exemption when working offshore South African residents are generally subject to worldwide tax, except for long-term services provided offshore (at least 183 days in any 12-month period). The worldwide tax regime may be extended to such services, subject to appropriate tax credits on any foreign tax paid.

33 8. Withholding tax on interest South African interest paid to a non-resident is free from South African income tax; As from 1 March 2014 South African interest accruing to a non-resident will be subject to a rate of 15% withholding tax on payment, except interest arising from: any Government debt instrument; any listed debt instrument; any debt owed by a bank or SARB. Interest on loans to South African companies will attract the withholding tax. Double Taxation Agreements may provide partial or full relief. Withholding tax on royalties paid to non-residents to increase from 12% to 15% on 1 March 2014.

34 9. Trust reform Proposals do not apply to special trusts (minor children or disabled persons). Discretionary trusts will no longer operate as flow-through vehicles. All taxable income and capital gains will be taxed in the trust. Distributions will be treated as deductible payments to the extent of current taxable income, and beneficiaries will be taxed on the distributions received (excluding any dividend income component). The interest income exemption and annual capital gains tax exclusion (currently R30,000) can not be utilised again taxable distributions received by beneficiaries. Beneficiaries will end up paying tax on 2 / 3 of capital gains distributed and not on 1 / 3 of the capital gain. Review of trusts as generation skipping devices.

35 10. Capital allowances Revision of the industrial policy project incentive (preferred projects can get additional investment allowances of up to 55%). Less administrative work. Supporting structures for energy projects now depreciable at a 50:30:20% rate.

36 11. Government grants Most government grants remain tax-free. Anti-double-dipping rules to be introduced for years of assessment commencing on/after 1 January If an exempt grant is used to fund the acquisition of trading stock, the cost price of that trading stock must be reduced by the amount of the grant. If an exempt grant is used to fund the acquisition of an allowance or capital asset, the base cost of the asset must be reduced by the amount of the grant. Any excess grant funding will reduce the taxpayer s allowable section 11 deductions, or will be carried over into the next year to reduce the following year s deductions.

37 12. Medical aid deductions As from 1 March 2012 the new Medical Tax Credit System came into effect. Further amendments to the system are to be implemented in 2014 (2015 tax year). Younger than 65 years Previously: May claim medical aid contributions paid by the taxpayer or employer up to the capped amount, and the sum of out of pocket expenditure and medical aid contributions in excess of the capped amount, to the extent it exceeds 7,5% of taxable income before this deduction.

38 12. Medical aid deductions (continued) From 1 March 2012: Medical aid contributions may be claimed as a credit against tax payable as follows: R230 (now R242) per month each for the taxpayer and the first dependant; R154 (now R162) per month for each additional dependant. Additional medical expenses which may be claimed as a deduction against taxable income include: so much of the medical aid contributions made by the taxpayer or employer as exceeds four times the medical credit limit; out of pocket medical expenses. The taxpayer may deduct these additional medical expenses to the extent that it exceeds 7,5% of taxable income before this deduction and any retirement lump sum benefit.

39 12. Medical aid deductions (continued) From 1 March 2014: Additional medical expenses exceeding 7,5% of taxable income (as calculated above) will be converted into tax credits at a rate of 25%. 65 years and older: Previously and from 1 March 2012 (no change): May claim all medical aid contributions and all out of pocket expenditure as a deduction against taxable income. From 1 March 2014: All medical aid contributions in excess of three times the total allowable credits plus all out of pocket expenditure are converted into a tax credit of 33,3% (no 7,5% limit).

40 12. Medical aid deductions (continued) Younger than 65 years (if an immediate family member has a disability) Previously: May claim all medical aid contributions and all out of pocket expenditure as a deduction against taxable income. From 1 March 2012: Medical aid contributions will be claimed as a credit against tax payable (as for other people younger than 65). All medical aid contributions in excess of four times the total allowable credits plus all out of pocket expenditure may be deducted against taxable income, but without the 7,5% limit. From 1 March 2014: All medical aid contributions in excess of four times the total allowable credits plus all out of pocket expenditure are converted into a tax credit of 33,3% (no 7,5% limit).

41 12. Medical aid deductions (continued) An example 2014 tax year < < Income Medical aid costs (two people) Out of pocket costs Total costs Tax credits R242 x 2 people x 12 months Medical aid costs times tax credits (4 x 5 808) Additional medical costs ( ) Out of pocket costs Additional costs ( ) ,5% of income Additional costs (R18 768) exceeding 7,5% of income nil 1. Taxable income Taxation is reduced by tax credits of:

42 12. Medical aid deductions (continued) 2015 tax year < < Tax credits (assume no increase from 2014) Medical aid costs x tax credits x tax credits Additional medical costs Out of pocket costs Total additional costs ,5% of income Additional costs exceeding 7,5% of income nil Costs for additional tax credit nil Additional tax credits: Tax 33,3% Tax 25% nil Total tax credits:

43 13. IT14SD forms Normally required when a refund is due or as a pre-cursor to an audit. 21 calendar days from date of issue; option of further 21 days. Failure to comply results in re-assessment or failure to pay refund. Legitimate deductions and allowances can be denied in the re-assessment. This then also triggers the under-estimation penalty with regards to provisional tax. Employees tax needs to be reconciled to all employee costs in the financials. VAT output needs to be reconciled to Turnover. VAT input needs to be reconciled to Cost of Sales.

44 Tax Compliance & Tax Administration Act Jessica Southgate

45 Compliance functions & SARS legislation 1. Provisional Tax 2. Administrative Penalties 3. Understatement Penalties 4. Voluntary Disclosure Programme 5. Tax Compliance 6. Process

46 1. Provisional Tax Criteria A Provisional Taxpayer is defined in paragraph (1) of the Fourth Schedule as : Any person who derives income which is not remuneration (as defined) or an allowance or advance (contemplated in section 8(1)). Any company. Any person notified by the Commissioner that he is a provisional taxpayer.

47 1. Provisional Tax Returns (continued) In cases where income > R1m, TI estimate for second period must be => 80% of actual income on assessment. In cases where income < R1m, TI estimate for second period must be => 90% of actual income on assessment if your TI estimate is < basic amount (last assessed).

48 1. Provisional Tax Returns (continued) Underestimation will attract 20% penalty on difference between tax owing and tax paid, previously on actual and estimated TI submitted. However, a change in the determination of the penalty on the underestimation of provisional tax is proposed which has the effect that the penalty will be imposed only where the full amount of the tax on the required estimated taxable income is not paid by the end of the tax year. Late payment/non-submission will attract a 10% penalty on total tax liability. Nil returns MUST still be submitted.

49 2. Administrative Penalties Non-compliance that may attract an Administrative Penalty: Registration requirements Not registering when required to Registering outside of the time prescribed to register Not completing a registration form in full or correctly Not submitting the supporting documentation. Change to registration details Not informing SARS when there is a change of a postal, physical or electronic address Not informing SARS when there is a change to the representative taxpayer Not informing SARS when there is a change to banking details. Returns Failure to file a return Failure to file a return on time Failure to use the prescribed form Failure to sign the return as required.

50 2. Administrative Penalties (continued) Retaining Records Not retaining records in their original form or in an authorised manner Not retaining records for the prescribed period Not keeping the records open for inspection by SARS. Information Gathering Not attending an interview when requested Not timeously providing material available when requested Not co-operating during a field audit or investigation. Debt Management Not giving full and accurate information when requesting a deferred or instalment payment arrangement.

51 2. Administrative Penalties (continued) Monthly penalties are based on a sliding scale as illustrated below and are calculated on assessed loss or taxable income for preceding year. (i) Assessed loss R250 (ii) R0 R R250 (iii) R R R500 (iv) R R R1 000 (v) R R R2 000 (vi) R R R4 000 (vii) R R R8 000 (viii) Above R R16 000

52 Changes to Medical Aid on Pastel Payroll 2. Administrative Penalties (continued) There are four categories to remit an administrative non-compliance penalty : a) If the penalty was imposed for a failure to register; b) If the failure is a nominal or a first incidence; c) If exceptional circumstances exist; d) If the penalty was incorrectly imposed (no reason).

53 Changes to Medical Aid on Pastel Payroll 3. Understatement Penalties An understatement penalty may only be imposed if the fiscus is prejudiced by the taxpayer s conduct in reporting or if there is a shortfall (i.e. a shortfall in the difference between the correct amount of tax that should have been reported and the amount that was reported by the taxpayer). If there is prejudice, this must have been caused because a taxpayer : Did not file a return; Filed a return but omitted an item from that return; or Filed a return in which an incorrect statement was made.

54 Changes to Medical Aid on Pastel Payroll 3. Understatement Penalties (continued) How is the shortfall calculated? The shortfall on which the applicable % is applied, is the sum of the difference between : a) The tax properly chargeable and what would have been charged if the taxpayer s reporting had been accepted; b) The amount properly refundable and what was refundable according to what the taxpayer reported; and c) The notional amount of tax applied to the loss or other benefit properly carried forward, and what the loss or benefit was according to what the taxpayer reported. If an understatement results in a difference under both paragraphs a) and b), the shortfall must be reduced by the amount of any duplication between the paragraphs. The tax rate is the maximum tax rate applicable to the taxpayer, ignoring an assessed loss or any other benefit brought forward from a preceding tax period to the tax period.

55 3. Understatement Penalties (continued) The Tax Administration Act provides to different rates of an understatement penalty based on the type of behaviour or the degree or culpability involved. Item Behaviour Standard case Obstructive or repeat case VDP after audit VDP before audit (i) (ii) (iii) Substantial understatement Reasonable care not taken in completing return No reasonable grounds for tax position taken 25% 50% 5% 0% 50% 75% 25% 0% 75% 100% 35% 0% (iv) Gross negligence 100% 125% 50% 5% (v) Intentional tax evasion 150% 200% 75% 10%

56 3. Understatement Penalties (continued) Definitions of Behaviours Substantial understatement o o No other behaviour defines the facts of a case; The prejudice to SARS must exceed the greater of 5% of the tax properly chargeable or refundable, or R1 million. Reasonable care not taken o Reasonable care is not defined, so the ordinary meaning must apply. It does not mean perfection, but refers to the effort required in preparing and filing an income tax return. No reasonable grounds for the tax position Underpayment of tax occurs due to taxpayer s interpretation of the application of a Tax Act and does not have a reasonably arguable position, e.g. o o o o An amount, transaction, event or item is taxable; An amount or item is deductible or may be set-off; A lower rate of tax than the maximum applicable to that class of taxpayer, transaction, event or item applies; or An amount qualifies as a reduction of tax payable. The purpose is not to levy a penalty when SARS disagrees with a position adopted by a taxpayer, but to attach a penalty where a taxpayer assumes a position unreasonably.

57 3. Understatement Penalties (continued) Definitions of Behaviours Gross negligence o o o o Gross negligence resulting in too little tax being paid or a tax refund is overstated. Doing or not doing something in a way that, in all the circumstances, suggests or implies complete or high level of disregard for the consequences. The test for gross negligence is objective and is based on what a reasonable person would foresee as being conduct which creates a high risk of a tax shortfall occurring. Involves recklessness, but, unlike evasion, does not require an element of wrongful intent or guilty mind, or intent to breach a tax obligation. Intentional tax evasion Includes actions that are intended to reduce or extinguish the amount of tax that should be paid, or which inflate the amount of a refund that is correctly refundable to the taxpayer. o o o o A false statement made in a return; Not filing a return; Acting with intent to evade tax; A wilful act that exists when a person s conduct is meant to disobey or wholly disregard a known legal obligation, and knowledge or illegality is crucial.

58 3. Understatement Penalties (continued) Remittance and Disputes SARS may remit a penalty imposed if they are satisfied that the taxpayer : made full disclosure of the arrangement that gave rise to the prejudice to SARS or the fiscus by no later than the date that the relevant return was due; and was in possession of an opinion by a registered tax practitioner that Was issued by no later than the date that the relevant return was due; Took account of the specific facts and circumstances of the arrangement; and Confirmed that the taxpayer s position is more likely than not to be upheld if the matter proceeds to court. A decision by SARS not to remit an understatement penalty is subject to objection and appeal.

59 4. Voluntary Disclosure Programme A permanent legislative framework for voluntary disclosure that applies to all tax types is included in the Tax Administration Act. It seeks to encourage taxpayers to come forward and avoid the future imposition of understatement penalties, other administrative penalties and interest. A defaulting taxpayer will be granted relief under the programme, provided - The disclosure is complete; SARS was not aware of the default; and An administrative non-compliance penalty or understatement penalty would have been imposed had SARS discovered the default in the normal course of business. Extent of relief - If the taxpayer has remedied all non-compliance, 100% relief in respect of an administrative non-compliance penalty will be granted. The relief excludes penalties imposed for the late submission of returns or for the late payment of tax; Relief in respect of any understatement penalty as determined in the applicable column in the understatement penalty table; SARS will not pursue criminal prosecution. A person cannot qualify for VDP relief if this will result in a refund being payable to the person. VDP does not apply to the imposition of interest or exchange control.

60 5. Tax Compliance The Tax Ombud has yet to be appointed by the Minister of Finance, which must be appointed within 1 year of the onset of the TAA, i.e. 1 October The Tax Ombud will only deal with service, procedural or administrative issues. Should you not be 100% tax compliant, clearance certificates remain a problem. SARS are proposing a modernisation procedure whereby the authorisation of tax clearance certificates will be real-time and may be withdrawn should the taxpayer become non-compliant. SARS have begun adding back input VAT should they be dissatisfied with your supporting documentation resulting in a liability including interest and penalty charges. Banking details must be updated every 5 years despite the age of the banking account. SARS are considering a single reference number for all taxes (CIT, PIT, VAT, PAYE, SDL & UIF). Taxpayers will have one account that reflects their entire tax liability.

61 Framework being established for first in first out payment allocation rule, i.e. payment may be applied to oldest debt first despite taxpayer designation. SARS are obliged to advise the taxpayer every 90 days of the stage of an audit. A letter of audit findings must be provided to the taxpayer within 21 days of the audit being finalised. A signed Power of Attorney must be presented to SARS in all dealings with them valid for a period of 2 years only. TAA generally uses business days in the context of time periods for registrations, submission of returns or requested relevant material and calendar days in the context of time periods for payment of tax or calculation of interest. Remember that 16 December to 15 January are non-days. Taxpayer has 30 days from the date of assessment in which to lodge an objection. A retention period of 5 years from the date of submission of a return is required by SARS.

62 Reconcile 6. Process EMP 201 Returns Reconcile between: IRP5 Certificates SARS PAYE Account Resulting in: Successful EMP 501 Declaration

63 6. Process (continued) The following factors are crucial in order to ensure a successful submission: A valid e-filing profile to ensure timeous monthly EMP201 submissions and payments and in so doing maintain a healthy PAYE account. Timeous application for income tax reference numbers for ALL new employees. Constant sustainability in SARS software updates. Amendments to SARS PAYE account to match your records (Recon Assist). Monthly synchronisation on E@syfile to ensure action is taken on possible ITA88 (Agent Appointment).

64 Nwanda Tax Department Contact Details Jessica Southgate Tax Compliance Director Justine Li Tax Compliance Manager Liza Hlatswayo Tax Administrator Carmen Risk Tax Compliance Officer Vicky du Plessis Tax Compliance Assistant

65 Companies Act Compliance Malyssa Hattingh

66 Content 1. Memorandum of Incorporation ( MoI ) 1.1 Overview 1.2 Transitional arrangements 1.3 MoI s, company rules and shareholder agreements 2. Close Corporations and the new Companies Act 3. Annual returns 3.1 Annual financial statements to be filed with annual returns 3.2 Categories of companies required to be audited 3.3 Public Interest Score 3.4 Calculation of CIPC fees payable on annual returns 4. Companies and Intellectual Property Commission (CIPC)

67 1. Memorandum of Incorporation ( MoI ) 1.1 Overview Memorandum and Articles of Association of companies incorporated in terms of the 1973 Companies Act have been substituted with the condensed Memorandum of Incorporation in terms of the new Companies Act; The new Act took effect on 1 st May 2011, whereby all the Memoranda and Articles of Association of pre-existing companies automatically deemed to be Memorandum of Incorporation; No deadline for adoption of new MoI and no penalty for late filing; A filing fee on form CoR 15.2 (special resolution) is payable for all MoI amendments going forward; MoI takes precedence over shareholders agreements, where conflicts arise.

68 1. Memorandum of Incorporation ( MoI ) (continued) 1.2 Transitional arrangements Schedule 5 of Companies Act, 2008 details transitional arrangements implemented for pre-existing companies with effect from 1 st May 2011 to 1 st May 2013; Arrangements made provisions for various scenarios where companies had not adopted a new MoI, allowing them a 2 year period of time to do so wherein no CIPC filing fees would be charged; Arrangements have now expired, must refer to relevant sections within Act dealing with scenarios contained therein as well as Articles to determine course of action where necessary, except for winding-up provisions; Winding-up and liquidation provisions as detailed in old Companies Act, 1973 continue to apply despite the repeal thereof.

69 1. Memorandum of Incorporation ( MoI ) (continued) 1.3 MoI s, Company Rules and Shareholder Agreements Where companies have adopted any binding provisions having the effect of being comparable to rules of the company, or shareholder agreements, should any conflicts with the MoI (Memorandum and Articles of Association) arise, the MoI takes precedence; Where the MoI (Memorandum and Articles of Association) conflicts with any provisions of the Act, the Act takes precedence; To align constitutional documentation of companies with provisions contained in any rules or agreements, recommended to adopt new MoI to include pertinent provisions within the MoI; Companies which have not adopted a new MoI, electing not to comply voluntarily with the optional provisions of the Act, dealing with inter-alia, the audit requirement, appointment of company secretary and audit committee.

70 2. Close Corporations and the new Companies Act Various sections of the Close Corporations Act amended to conform with provisions of new Companies Act; From 1 May 2011, incorporation of new CC s was prohibited; CC s must file annual returns on same basis as companies, no distinction between the two; Same provisions as companies apply to CC s in respect of annual financial statements and transparency and accountability requirements as contained in the Companies Act; Should deregistered CC s be required to be reinstated, same documentation to be filed with CIPC as for companies; To remove members of CC s where those members cannot be located, a court order must be obtained by existing members to be filed with CIPC together with application to remove them.

71 3. Annual returns 3.1 Annual financial statements to be filed with annual returns All companies and CC s must file annual returns with CIPC on their anniversary date and pay the prescribed fee based on turnover; With effect from 1 April 2013, all companies and CC s required to be audited in terms of Regulation 28 of the Companies Act, must submit a copy of their audited annual financial statements to CIPC with their annual returns; Requirement to fully disclose all elements of public interest score calculation on annual return form; Failure to file returns will result in deregistration by CIPC.

72 3. Annual returns (continued) 3.2 Categories of Companies required to be audited (incl. CC s) Any company holding assets in a fiduciary capacity to the value of R5m in its ordinary course of business; Any public or state owned company; Any company whose public interest score is 350 or more; Any company whose public interest score is at least 100, if annual financial statements prepared internally; Any company required to be audited in terms of any other legislation by virtue of the industry they operate in (e.g. Law Society, FSB, EEAB etc.)

73 3. Annual returns (continued) 3.3 Public interest score calculation (incl. CC s) Public interest score must be calculated at the end of every financial year, as follows: 1 point for every R1m in turnover; 1 point for every R1m owing in third party liabilities; 1 point for every individual beneficial shareholder in the company; 1 point for per employee for average number employed during year

74 3. Annual returns (continued) 3.4 Calculation of CIPC fees payable on annual returns (incl. CC s) The fees based on turnover payable to CIPC for the filing are annual returns are as follows: Between R0 and R1m - R 100 Between R1m and R10m - R 450 Between R10m and R25m - R2 000 Above R25m - R3 000 * Dormant companies still required to pay minimum fee and file returns to remain registered.

75 4. The CIPC From 1 st May 2011, CIPRO became CIPC, changing from a registration office to a Commission; Despite CIPC Service Delivery Standards on CIPC website (unchanged since 16 th January 2012), delays in registration of documentation experienced as follows: Director changes between 4 & 6 months; Name reservations between 3 & 4 weeks; MoI amendments between 8 & 10 weeks; New company registrations between 4 & 6 weeks

76 Secretarial Department Contact Details Malyssa Hattingh Secretarial Compliance Officer Pat Rusch Secretarial Consultant

77 DISCLAIMER Every precaution has been taken to ensure the accuracy of the information contained in these notes. However, the authors cannot accept responsibility for any loss or damage suffered by a person as a result of the reliance upon the information contained herein.