Monthly Archives: November 2016

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)