Services performed by ZA residents for non-residents WHT may be levied in the foreign jurisdiction Generally, WHT levied where service fees are sourced in foreign jurisdiction Source of services generally where these are performed However, certain DTAs may deem source to be where the payer is tax resident e.g. Article 20(5) of ZA/Botswana DTA Where no DTA section 6quat relief may apply if the services are not provided in SA as it will be from a foreign source DTA relief may apply e.g. Article 20 of ZA/Botswana DTA (15% 10%)
Services performed by ZA residents for non-residents (cont d) Certain DTAs do not cover services, therefore no relief e.g. ZA/Mozambique DTA Potential domestic relief e.g. M/3-DTI forms in Mozambique However, take note of disclosure to the Mozambique Revenue Authorities (MRA) in order for exemption to apply
Services performed by ZA residents for non-residents (cont d) Risks which may arise for ZA resident in foreign jurisdiction: PE - income tax registration and the related tax compliance VAT - registration and related tax compliance Employees tax registration as employer and related tax compliance for employer and employees. If foreign employees tax is borne by the employer fringe benefit to the employees and additional cost to business These will increase costs and therefore reduce margins on projects
Services performed by ZA residents for non-residents (cont d) Ability to claim relief in ZA section 6quat (1A) rebate Where taxes are proved to be payable in foreign jurisdiction Can only claim credit against normal tax payable. Therefore, no relief if in a loss position but can carry the credit forward for 7 years (1C) deduction Any taxes on income paid or proved to be payable in foreign jurisdiction Relief available even where foreign jurisdiction taxed amount incorrectly The deduction is not available if the services are foreign sourced then one must claim section 6quat Section 6quin repealed wef 1 January 2016 iro YOA commencing on or after that date
Services performed by foreign residents in ZA Public Notice (PN) 140 on Reportable Arrangements (RA) issued by SARS on 3 February 2016 and effective on or after that date Services rendered by non-residents to ZA residents or to non-residents with a PE in ZA, where: such non-resident was, is or anticipated to be physically present in South Africa in connection with or for the purposes of rendering those services; and the expenditure incurred or to be incurred in respect of those services on or after 3 February 2016 exceeds or is expected to exceed R10 million in aggregate; and does not qualify as remuneration for purposes of Fourth Schedule It appears that this could apply even if non-resident in ZA for meetings only
Services performed by foreign residents in ZA (cont d) Remuneration is defined in the Fourth Schedule as any amount of income paid or payable to any person by way of salary,..fee and whether or not in respect of services rendered, but not including any amount paid or payable in respect of services rendered or to be rendered by any person (other than a person who is not a resident ) in the course of any trade carried on by him independently The PN does not require that there should be employees tax deducted from the remuneration Can payments to foreign individuals be regarded to be remuneration?
Services performed by foreign residents in ZA (cont d) If applicable, participant must report arrangement to SARS within 45 business days of becoming a RA or becoming a participant in an existing RA participant a promoter or person who derives a tax benefit promoter a person primarily responsible for the arrangement tax benefit avoidance, postponement, reduction or evasion of tax liability Is a deduction for the consulting fees a tax benefit to the ZA resident? Both participant and promoter obliged to report Participant need not disclose the RA if obtained written statement from any other participant that the other participant has disclosed the RA
Services performed by foreign residents in ZA (cont d) Practically, the timing for disclosure may be after the 45 business days as the information is obtained from accounting reports, which are prepared after the arrangement has been discussed/entered into arrangement transaction, operation, scheme, agreement or understanding, whether enforceable or not Penalties for failure to disclose: R50 000 for a participant R100 000 for a promoter These may be doubled if the amount of anticipated tax benefit exceeds R5 million or tripled if the benefit exceeds R10 million These penalties are levied on both parties
Services performed by foreign residents in ZA (cont d) Secondment of foreign entity s employees to ZA and recovery of costs by the foreign entity is the amount paid to foreign entity remuneration or a service charge? Taxpayer would need to analyse nature of payment in line with the OECD model commentary contract of employment or contract for services? Contract of employment fee represents seconded employees remuneration, employment benefits & costs, with no profit or profit element which is a % of these costs can thus be regarded as recovery of remuneration? Contract for services fee charged bears no relationship to the amount recovered or is only one of the factors, similarly to a consulting environment which determines an hourly charge-out rate likely to be service fee. Therefore, both the ZA and entity may be required to disclose RA
Services performed by foreign residents in ZA (cont d) Interaction of secondment fees and VAT SARS considers secondment fee not to be recovery of remuneration but a fee for services rendered Recent SARS rulings on these consider that foreign entity is carrying on an enterprise in ZA, and required to register for VAT if fee > R1m. If so, foreign entity required to charge VAT at 14% If SARS regards this to be a service charge for VAT is it likely that the same principle would apply for income tax? Thus, ZA entity would be required to disclose secondment fees paid to foreign entities in excess of R10m
Services performed by foreign residents in ZA (cont d) Is there is any benefit to SARS to place this burden on taxpayers, where the foreign services providers have a tax presence (e.g. PE) in ZA? Does SARS have capacity to deal with these reporting obligations? What is the cost to taxpayers to collate this information (time, resources)?