Offshore companies and doing business in South Africa – a companies act perspective

According to the most recent statistics released by the South African Revenue Service, South Africa remains a net importer of goods and services. Put differently, one could say that South Africans are more often clients in cross-border transactions than they would be the service provider. Many of our clients operate in this space, including foreign incorporated companies which are doing business in South Africa. This article is aimed at those specific clients of ours: those clients doing business in South Africa through companies incorporated outside of South Africa.

Section 23 of the Companies Act, 71 of 2008, regulates when foreign companies are required to register as “external companies” in South Africa. In terms of that section an external company must register with CIPC within 20 business days after it first begins to conduct business, or non-profit activities, in South Africa. The question is then when will the company in question be considered to be conducting business here?

A foreign company is, by virtue of the provisions of the Companies Act, regarded as conducting business in South Africa if either it is a party to at least one employment contract in South Africa, or if it is conducting such activities for a 6-month period “as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within the Republic.” (section 23(2)(b)) Therefore, having even one employee in South Africa requires a company to register.

Certain exclusions may apply and where the Act is explicit that certain activities should not be considered to establish sufficient enough a presence in South Africa to deem the company to be one conducting business here (and therefore required to register with the relevant authorities). However, these exclusions are illuminating in the sense that it presents a rather low bar of activity (such as having shareholders’ meetings here or maintaining a bank account), therefore potentially hinting that the bar for being considered to conduct business in South Africa and therefore required to register as an external company may not be very high.

In terms of section 23, any foreign company required to register as an external company in South Africa must maintain an office in this country. Moreover, failure to adhere to the requisite registration requirements may ultimately lead to a company being notified that it is no longer allowed to carry on business operations in South Africa. Although this article does not consider the implications of registering as external company, we also wish to alert affected clients thereto that this legislative registration requirement may have certain tax and exchange control related implications inherent to them, and on which advice should be taken to manage these requirements in a sensible and responsible manner.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Home office expenditure

With current day realities manifesting in ever increasing distances required to be travelled to get to an office, traffic congestion, etc. more and more employers are opting to give their employees the option of working from home. The proliferation of “home offices” has surfaced in dramatic fashion in recent times. It is therefore only natural that we have been experiencing an increased number of queries related to whether expenditure linked to home offices are tax deductible. With home office expenditure, we refer here specifically to those costs linked to occupying a specific space in a home for purposes of earning an income. This includes typically rent, interest paid on a bond, repairs, maintenance and other related costs.Limitations to deductions for tax purposes in relation to home office expenditure is specifically dealt with by section 23(b) of the Income Tax Act, 58 of 1962. In essence it determines that home office expenditure is not deductible save in very strict circumstances, being:

  • where the part of the home used is used exclusively and regularly used for purposes of the taxpayer’s trade; and
  • on condition that the space so used must also have been specifically equipped for this purpose.

Home office expenditure will moreover not be deductible where the trade exercised involves employment or the holding of an office (such as a director for example), unless either:

  • the income earned is in the form of commission or any similar type of variable payment, and on condition that the duties of employment or office held are performed primarily outside of an office environment provided by an employer; or
  • the employment/office duties viewed holistically are mainly performed in the designated part of the home.

If either of the above two exceptions are met, home office expenditure will be deductible irrespective thereof that the taxpayer is an employee or the holder of a specific office. It is noted that section 23(m)(iv) in this regard also does not operate to limit deductions of home office expenditure more than is already the case in terms of section 23(b). (Section 23(m) ordinarily operates as the onerous provision severely limiting the tax deductions available to salaried individuals.)

As a final comment it should be pointed out that the above tests linked to whether home office expenditure is deductible or not all involves objective tests. SARS is also known to be extremely strict in its application of section 23(b). The Tax Administration Act, 28 of 2011, by virtue of section 102 provides that the burden of proof for showing that a deduction should be allowed rests on the taxpayer. SARS is therefore under no obligation to disprove any of the requirements necessary to qualify for home office expenditure. Rather, the taxpayer should be able to show that the space in question is exclusively and regularly used for business purposes and that it has been specifically equipped therefor. It should further illustrate that income earned comprises mainly a variable form of compensation and that no other space is available to the taxpayer, or that the services are performed mainly from the designated space at home.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Newtons hosted a fun bowls day on the 18th November at Municipals

 

Random Acts of Kindness

Though we are not keen to admit it, as accountants we love to complain as much as anyone else.

The aircon is too hot, the aircon is too cold, nobody notices me, I wish people would stop noticing me, I can’t wait to be done with this audit so I can get back to the office, I can’t wait to go on audit so I can get out of the office. These are some of the things we complain about every day.

But why do we like to complain so much? I daresay that it is fun. Being, or aspiring to be, a Chartered Accountant is tough (though equally rewarding). Partners working after sunset and then getting up early the next morning again to ensure only the best quality work leaves the offices. Trainees stressed about time and budgets, while balancing studies and that wedding that just had to be this year!

Then you get to drive home in heavy traffic, with your windows turned up to avoid the people who badger you into buying stuff you do not need and the fifth guy approaching your car holding a placard telling you about his three-legged son, his fifteen dogs and his incurable disease. Sometimes, somewhere deep inside you, you just want to scream: “Get a job!”

Afterwards, when we get home, we complain a bit more to make us feel better about how we felt towards those people.

Newtons is an accounting firm based in Bloemfontein. At Newtons we have a collection of core values (or apples as we call them) that include not only the attributes all Chartered Accountants are required to have, but also a few other apples every Chartered Accountant should have. Amongst the latter are Humility, Respect and Fun. It is in that spirit that a first-year trainee, named Nico, suggested that Newtons embrace the Random Acts of Kindness movement. It seemed more interesting that complaining, so we went for it. That was way back in 2015. Since it has grown from an effort to give a hundred breads to hungry people on the street to donating water for drought-stricken areas. In between there was a visit to and fundraiser for the Sunflower Hospice and taking much needed supplies to an animal shelter. The basic concept is that a year group would do something “random” for charity. Once the year group has completed the challenge, they would show a video of what they did at the next office function. After showing the video and sharing their experiences, they would challenge another year group to do a Random Act of Kindness. At Newtons we started with the first-years, then the second-years, eventually went up to the managers and partners and are now doubling back to the new first-years.

Truth be told, Newtons (like many other accounting firms out there) has a long history of embracing charity (e.g. helping to clean up the neighbourhood and supporting Bandana Day). What makes Random Acts of Kindness unique is that, over time, it involves every person in the firm in a little bit of charity, instead of simply leaving it to the usual suspects. This is an effective way to spread the love. Newtons is just one of the firms doing this. Imagine what could happen if every firm across South Africa would embrace the concept.

Best of all is that when you are standing at that robot again, having accidentally forgotten your window open, desperately trying to push stuff out of your car that the street salesman is trying to push in while the guy with the three-legged kid is mumbling nonsense at you, you get a moment to smile. You get the moment because you know that, although you cannot fix everything, these people are in a way people just like you. They also have problems and are also just trying to make their way in the world. You are most probably not going to help one of them that day, but you did help another not much unlike them not too long before. If that theory about the Butterfly Effect is true, your small contribution to someone in need could improve the street salesman’s and the mumbling guy’s life as well someday. Clearly trivial, extrapolated across the population, can indeed become quantitatively material. And that is something worth smiling about.

For more information, please refer www.randomactsofkindness.org,
as well the blog section at www.newtons-sa.co.za for more information on projects undertaken by Newtons personnel

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

Newtons Laws of Business

Running a successful business is one of the most difficult things to do.

One has to consider

  • Staff
  • Customers
  • Suppliers
  • Product
  • Finances
  • Marketing

As an owner there is often nobody to talk to or to assist in dealing with all these facets that comprise running your own business.

Over many years I have come across some tips which might be interesting or assist in thinking differently.

Please enjoy and read.

Law 1

Control and understand your business

Due to all the different facets that comprise the running of a successful business, try and find the one or two things in your business that can be easily identified that will inform you as to the health of the business.

For example, the owner of a shoe manufacturer insisted that every morning the total number of shoes manufactured the previous day was placed on his desk. In this way he was able to know exactly on a day to day basis what the general state of the business was.

Try to determine which factors are critical to your business and monitor them closely.

Law 2

Communication

Business owners often find it difficult to communicate.

Remember you are not alone. Your employees are a vital asset. It is only through proper communication that your employees know what is expected from them, what the goals and strategy of the business is.

Law 3

Think out of the box

Things do not stay the same and are continually changing.

In order to stay relevant the business must adapt, change and develop. Don’t do the same thing over and over and expect a different result. Take time out to think about the business. This is easier said than done but as the owner one has to have a wider vision. Most businesses have a limited lifespan especially with the technological developments.

It is important to sit back and think creatively on what to do or where to go.

Law 4

Accounting and sales

Salesmen want to sell and are not bothered if the money comes into the bank account while the accountants would rather not sell if there is a chance that the money will not be received.

It is very important that accounts and sales work in harmony with each other. The accounting side must not inhibit sales and sales must act responsibly. The two must ensure that maximum income is achieved with the necessary controls in place to ensure recovery.

I think it is important to tell both divisions that they do often pull in different directions and for them to realise this so that they can work together to achieve the right outcome.

Law 5

Employ the right staff

You will be successful if you appoint the best people available.

Surround yourself with great people. They will make you look good and increase profitability.

Compliments are for free and employees need to be praised if good work is achieved. They need to feel respected and appreciated. This features prominently in “Maslow’s hierarchy of needs”.

I know it doesn’t always feel this way but staff is an asset.

Law 6

Focus

Running a business is not easy and unfortunately in order to be successful one has to work very hard. Don’t lose focus on what you are doing.

Distractions are many and easily come by. Whether you are behind the till or have a group of managers and staff one always has to stay focussed on your business. Things can slip easily and quickly.

It might be useful to remember the 80 : 20 principle. Concentrate on the 20% that produces 80% of the profit whether the 20% is customers, stock items, services or areas.

Owning your own business is hard work and like everything else that is important needs a lot of attention.

Law 7

Happiness – Love what you do

You have a much greater chance of success if you enjoy getting up every morning and going to your business.

If you are not in that fortunate position, focus on the positives and don’t let the small negatives overshadow all the positive points. Often employing the right staff may change the environment into a happy place. Maybe by getting a partner that shares the stresses of a business can be the answer.

ENJOY LIFE

Many of these points may have no bearing on you or your business but I hope that some part of this would have been of interest.

– Cedric Peterson

Bosses Day

The Newtons staff celebrating Bosses day on the 17th of October 2016.

Removing directors of a company

The Companies Act, 71 of 2008, requires that the business and affairs of any company be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the company’s Memorandum of Incorporation provides otherwise (section 66(1)). The Companies Act further requires that a company must have at least one director (section 66(2)), and further that only natural persons may serve in that capacity (section 69(7)(a)).

Those individuals occupying the position of directors of a company are therefore responsible for managing the affairs of the company and they do so as custodians on the shareholders behalf. It should be remembered that the directors do not own the company: the company rather is owned by the shareholders and the directors serve therefore to promote the interests of the company, and indirectly therefore the economic interests of the shareholders.

Quite often, in the case of private companies, the directors and shareholders may be the same individuals. However, where the directors have no or limited shareholding interest in the company itself, it may happen that the shareholders may wish to move to have certain directors removed and replaced on the company’s board if e.g. the company’s financial performance or operations otherwise are not satisfactorily conducted according to the shareholders’ liking.

Naturally, a director may be requested to resign under amicable circumstances. However, where a director refuses to resign (and may perhaps have the backing of other shareholders), the question becomes what remedies the aggrieved shareholders still have? It is possible to have these matters regulated in terms of the company’s Memorandum of Incorporation specifically to dictate under which circumstances a director may be removed from the board of a company. It could also be agreed with the director initially by way of a clause in the appointment contract.

Irrespective of whether the Memorandum of Incorporation or an appointment contract addresses the matter specifically, a director may always be removed by way of a majority vote at an ordinary shareholders’ meeting (section 77(1)). Before the shareholders of a company may consider such a resolution though, the director concerned must be given notice of the meeting and the resolution, and be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote (section 77(2)). In terms of procedures not entirely different from that as applied to shareholders, the directors may among themselves too resolve to remove a director from the board of a company (sections 77(3) & (4)).

It is important for directors to realise that they serve at the pleasure of shareholders. It is likewise necessary for shareholders to know that they have remedies against directors who do not deliver on their mandate, and that keeping directors in check amounts to good corporate governance.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Dividends Tax Compliance

Our clients will know that the dividends tax replaced the old Secondary Tax on Companies (“STC”) effectively 1 April 2012 already. Briefly, the STC was a tax on companies and calculated as a factor of dividends declared by that company. The regime was somewhat out of touch with international trends though (which also gave rise to certain anomalies when South Africa negotiated double tax agreements with other countries): the international norm is rather what we have in South Africa today too, being a tax on shareholders (as opposed to the dividend declaring company) and which tax is withheld from payment of dividends to the shareholders. The dividends tax is levied at 15%. By way of an example therefore, if a person (not exempt from the dividends tax) were to receive R100 in dividends from a South African company, that company will only pay R85 to the shareholder, and R15 would be withheld and paid to SARS on the shareholder’s behalf.

Although in our experience most of our clients exhibit an understanding of how the dividends tax regime operates, many of our corporate clients appear to be unaware of their filing obligations which go hand-in-hand with both dividend declarations as well as dividends received. Companies are required to file a dividend tax return when declaring a dividend (section 64K(1A)), but persons are also required to file a return if they receive a dividend exempt from the dividends tax. Since generally all South African tax resident companies are exempt from the dividends tax, this will effectively translate into South African tax resident companies having to file dividends tax returns for all South African dividends which they receive too.

The necessary dividends tax returns (the SARS DTR01 and DTR02 forms) are required to be filed by the end of the month following the month during which the relevant dividend was paid/received. The dividends tax payment (where relevant) should accompany said return.

Therefore, even if a company only pays and receives dividends none of which are subject to the dividends tax the exempt taxpayer is still obliged to file the requisite returns. The returns are also not the only compliance requirement to be observed: where a shareholder relies on a double tax agreement in terms of which a reduced dividends tax rate is to be applied (as opposed to the statutorily imposed 15% applicable domestically), or that person is exempt from the dividends tax altogether, that shareholder must inform the company of this status by way of a declaration made, together with an undertaking that the shareholder will inform the company should the status of the aforementioned change in future. In the absence of such a declaration, the company must still withhold dividends tax even if the shareholder is objectively speaking exempt from the dividends tax.

As one will no doubt realize, non-observation of the relevant dividends tax compliance requirements – even if they do appear to be somewhat trivial and admittedly not practically heavily policed by SARS – one ignores these requirements at one’s own peril. In this instance non-compliance may have a significant impact if a taxpayer is upon investigation found to be wanting in this regard.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

1/4 Apple Awards

The 1/4 Apple Award for September went to two well deserving Newtons Gentleman namely Martinus de Beer and Siseko Tose. Lucha Greying presented them with the awards.

The 1/4 Apple Award for September went to two well deserving Newtons Gentleman namely Martinus de Beer and Siseko Tose. Lucha Greying presented them with the awards.

Congratulations to the following staff on their lucky draw win at the 1/4 Apple Awards : from L-R Thelma Crossman, Sane van der Watt, Martinus de Beer, Siseko Tose, Thembakazi Kojana, Lucha Greyling (Partner) Elrico Greyvenstein, Willie van der Merwe

Congratulations to the following staff on their lucky draw win at the 1/4 Apple Awards : from L-R Thelma Crossman, Sane van der Watt, Martinus de Beer, Siseko Tose, Thembakazi Kojana, Lucha Greyling (Partner) Elrico Greyvenstein, Willie van der Merwe