Monthly Archives: August 2017

MSI Global Alliance adds two new members

MSI Global Alliance, one of the world’s leading international associations of independent legal and accounting firms, is pleased to announce the appointment of two new member firms Bowditch & Dewey, LLP in Massachusetts, USA and Dixcart Management (Cyprus) Limited in Cyprus.

With nearly 60 lawyers in three Massachusetts locations, Bowditch & Dewey, LLP offers a depth of practice in several areas of practice, including business and finance, real estate and environmental law, litigation, employment and labour (including immigration), tax controversy and estate and tax planning. Fortune 500 companies, start-ups, institutions and individuals rely on the firm to craft their business and legal strategy.

James D. Hanrahan, managing partner of Bowditch & Company, LLP, comments, “Our partners view the global reach provided by membership in MSI as both a client service and competitive advantage. The network has already proven to be a valuable resource to our clients with international needs. We look forward to a rewarding and effective partnership with all member firms.”

Corporate services provider, Dixcart Management (Cyprus) Limited, joins MSI in Limassol, Cyprus. The two partner firm advises corporate and private clients on creating and using structures in Cyprus and offers comprehensive corporate provider services including company formation and incorporation, management of companies, family office services and relocation advice.

Dixcart Management (Cyprus) Limited is the fourth office of the independent group Dixcart to join MSI, which has been providing professional expertise to organisations and individuals for over 40 years.

Robert Homem, managing director of Dixcart Management (Cyprus) Limited, comments, ”It is a pleasure joining the MSI Global Alliance, and we look forward to meeting and working with other MSI members.”

Tim Wilson, chief executive of MSI, comments, “I am delighted to welcome these two new additions to the MSI family.  Bowditch & Dewey is a well-established and highly respected law firm with a strong reputation throughout New England. I know they will contribute greatly to MSI, both within North America and internationally.  MSI has had a long association with Dixcart in a number of jurisdictions and I am very pleased to strengthen this further with their office in Cyprus joining us and adding to our existing member firms there.”

View the press release online

Kind regards,

Pauline

Tax residence for individuals

According to the South African Revenue Service (SARS), South Africa has a residence-based tax system, which means residents are, subject to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned. By contrast, non-residents are taxed on their income from a South African source.

In an increasingly global society where individuals travel more freely across borders and are able to hold assets in various countries, it becomes important for individuals with ties to South Africa to have certainty whether they are a South African tax resident or not. If they are, their entire income earned from wherever in the world may potentially be taxed in South Africa.

Tax residence is not linked to migration status. In other words, irrespective of which country’s passport one carries, tax residence may still be established in South Africa by virtue of the domestic tests applied by the Income Tax Act.[1] In terms of that Act, an individual will be tax resident in South Africa if either that person meets the criteria of the “physical presence” test, or if that person is “ordinarily resident” in South Africa.

The physical presence test involves a day counting exercise whereby a person will be considered to be a South African tax resident if he/she has been present in the Republic for at least 91 days every year for 6 tax years, and that the days spent in the country in total over this period amounts to at least 915 days in total. If this test is met, the individual will be tax resident from the first day of the last year forming part of the 6-year period referred to.

The question whether a person is “ordinarily resident” in South Africa is a more involved one. The term as used in the Income Tax Act is undefined, but our courts have considered the term to refer to “… the country to which [an individual] would naturally and as a matter of course return from his [or her] wanderings”.[2] The test involves a facts-based and substantive inquiry that in essence involves a person being asked: Where do you consider home to be.

Tax residence is not only relevant for purposes of where a tax liability may arise, but also to understand what tax compliance related obligations may arise for an individual. It is therefore important for individuals not to confuse migration and tax residence status; the two rather have very little to do with one another.

Reference:

[1] See the definition of “resident” in section 1 of the Income Tax Act, 58 of 1962

[2] Cohen v CIR 1946 AD 174

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)

Goods and services acquired by VAT vendors on credit

It is an established principle that registered VAT vendors may claim a deduction for input tax on goods or services acquired for use in the course of making taxable supplies as part of carrying on an enterprise.[1] For example, a VAT vendor purchases trading stock from another vendor for the purpose of sale to its clients subsequently. Once those goods are purchased by the VAT vendor, even if on credit, input tax may generally be claimed on the goods purchased.

Where the VAT vendor above buys the goods on credit, the input tax claimed may effectively be reversed if payment to the creditor is not forthcoming timeously. In terms of section 22(3) of the VAT Act, where the consideration for the purchase of goods have not been paid by the VAT vendor to its supplier within 12 months of it buying the goods, a portion of the input tax claimed must be effectively reversed and paid over to SARS as output VAT. In other words, where a VAT vendor has claimed input tax, but has not yet settled the amount due to the person providing it with those goods or services in respect of which the input tax is claimed, the input tax claim will be effectively cancelled.

Although it may appear to be a trivial matter to most, the question does become relevant where goods or services are supplied between related persons or entities, such as group companies for instance. When “payment” is made for purposes of the VAT Act has recently been considered in the case of XYZ Company (Pty) Ltd v CSARS.[2] In that case a VAT supply was made between a holding company and its subsidiary, with the amount owing subsequently being moved from the debtors’ book to the loan account which the subsidiary company had in place with the holding company. SARS contended that the purchase price remaining outstanding on loan account has not yet been paid by the subsidiary, and therefore the input tax claimed by the subsidiary had to be accounted for as output tax after 12 months of the supply taking place.

The Tax Court however differed and attributed a wide meaning to the word “paid”. It held that the action of transferring the debt due from the debtors’ book to the loan account of the parties amounted to the payment of the debt arising from the supply. The holding company acquired a new right with new terms, being those linked to the newly created loan account and which differed from the trade debt, even though the counter-party was unchanged. Payment, in a wide sense, is not limited to cash flow only, but also include an exchange and creation of new rights and obligations.

While the judgment deals specifically with the context of section 22(3), a consideration whether amounts have been “paid” or not are not limited to this provision only and the effect thereof may extend wider to other provisions of the VAT Act too, the provisions of section 16(3) – which deal with input tax claimed on second hand goods acquired – being a pertinent example.

References:

[1] Section 17(1) of the VAT Act, 89 of 1991

[2] Case No.: VAT 1247, 5 September 2016 (Cape Town)

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)

Ten tips for small business owners during tough financial times

When the economy is slow, small business owners struggle to survive, many for the first time. Financial problems consume valuable time and business resources, yet must be dealt with proactively. Also make use of your financial advisor or your banker; they have the expertise and knowledge regarding your business and its financial well-being.

  1. In tough times cash is king.
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    Have a close look at every purchase you need to make, and decide if it is worth the money. Will the product generate enough cash to pay for itself? If not, don’t buy it.
  1. Let your budget show the way.
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    Without a budget, you will find it difficult to cope with hard financial times. Adapt it regularly and do the same with your personal expenses. If you don’t keep track of expenses, they will become a bottomless pit into which all your cash will disappear.
  1. Look at your business’s financial position and performance objectively.
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    Do you get maximum returns from your investments? Could you sell those that are not making you money? When times are tough, survival is the only goal.
  1. Examine how your debt is structured.
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    If you have an imbalance between short-term and long-term debt you should restructure your long-term debt so that you can pay back the short-term debt over a longer period. Be careful not to take a loan against long-term assets, except if you are in critical need of money.
  1. Prepare for your meeting with your banker.
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    Make sure you have all cash flow and balance sheets and inventories at hand for your banker. This will make your review time more productive. Write down any ideas regarding your financial position and discuss them with your banker.
  1. Ask your banker about guaranteed loan programs.
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    Your banker could be able to restructure your business debt over a longer period if you are able to secure a credit guarantee on your loan to the bank. If your business is situated in a qualifying rural area, you may qualify for a guaranteed loan. Ask your banker about any additional resources which may be of use to your business.
  1. Review your insurance coverage.
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    Increase your deductibles and your premium will decrease. Items that are low-risk or obsolete should be removed from your inventory list.
  1. Examine your life insurance policies.
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    Some whole life policies have provisions that enable you to borrow against the cash surrender value at very low rates, or you could deduct the cost of the premiums from the cash surrender value. Determine whether your life insurance is worth the money or whether you couldn’t get by at a lower cost. Make sure all key personnel in your company have life insurance so that business can continue in any of the key players’ absence.
  1. Deal with financial problems immediately.
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    As soon as a financial problem arises, deal with it immediately. Keep your banker informed of any problems and make him part of your inner circle of confidants. Use your team as a soundboard to discuss financial difficulties and brainstorm solutions.
  1. Get some perspective.
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    Sometimes you need to get some distance from your work to solve the problems. Take a weekend off or go and watch a movie – whatever you do, leave your worries behind for a short while and focus on something else – it will make you and your business a lot stronger.

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)