2014/5. TAX GUIDE kpmg.co.za

Transcription

1 2014/5 TAX GUIDE kpmg.co.za

2 01 Income Tax: Individuals 1 02 Income Tax: CORPORATE TAXPAYERS Income Tax: INTERNATIONAL TAXPAYERS Indirect Tax: vat/trade and customs 29

3 contents INCOME TAX: INDIVIDUALS INCOME TAX: CORPORATE TAX PAYERS INCOME TAX: INTERNATIONAL TAXPAYERS INDIRECT TAX: VAT/TRADE AND CUSTOMS

4 INCOME TAX: Individuals INCOME TAX: Individuals and Special Trusts Tax rates (year of assessment ending 28 February 2015) Taxable income Rates of tax R R R R % of each % of the amount above % of the amount above % of the amount above % of the amount above and above % of the amount above Tax rates for previous year (year of assessment ending 28 February 2014) Taxable income Rates of tax R R R R % of each % of the amount above % of the amount above % of the amount above % of the amount above and above % of the amount above Tax Thresholds Age Threshold (R) 2014/15 Threshold (R) 2013/14 Below age Age 65 to below Age 75 and over Trusts, other than special trusts, will continue to be taxed at a flat rate of 40%. Tax Rebates 2014/ /14 Primary rebate for natural persons Secondary rebate for natural persons aged 65 and older Tertiary rebate for natural persons aged 75 and older /15 Tax Guide

5 Allowances Subsistence Allowances and Advances Where the recipient is obliged to spend at least one night away from his or her usual place of residence on business and the accommodation to which that allowance or advance relates in South Africa and the allowance or advance is granted to pay for: Meals and incidental costs, an amount of R335 per day is deemed to have been expended Incidental costs only, an amount of R103 for each day which falls within the period is deemed to have been expended. For overseas costs, the applicable rate per country is available on the SARS website under Legal & Policy / Secondary Legislation / Income Tax Notices / Travel Allowance A log book confirming business kilometres travelled must be maintained in order to claim any deduction for business kilometres. PAYE must be withheld by the employer on 80% of the allowance granted to the employee. The percentage may be reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. Any reimbursement of travel costs over and above a travel allowance provided by an employer must be added to the travel allowance for purposes of the year-end tax return calculation. It is not subject to PAYE, however, the employee may claim a deduction at the time of preparing his/her income tax return for business kilometres travelled and will be taxed on the portion of the allowance not claimed as a deduction. The fuel cost may not be claimed if the employee has not borne the full cost of the fuel used in the vehicle. The maintenance cost may not be claimed if the employee has not borne the full cost of maintaining the vehicle (i.e. if the vehicle is covered by a maintenance plan). The fixed cost must be reduced on a prorata basis where the vehicle is used for business purposes for less than a full year. Where the distance travelled for business purposes does not exceed kilometres per annum, no tax is payable on an allowance paid by an employer to an employee up to the rate of 330 cents per kilometre, regardless of the value of the vehicle. This alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle. 2

6 INCOME TAX: Individuals Travel Table Rates per kilometre which may be used in determining the allowable deduction for businesstravel, where no records of actual costs are kept, have been amended as follows: Value of the vehicle (including VAT) (R) Company Car / Employee Owned Vehicles The monthly taxable value is 3.5% of the determined value (the cash cost including VAT) per month of each vehicle. Where the vehicle is subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3,25% of the determined value; or Acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel. 80% of the taxable benefit will be subject to PAYE on a monthly basis. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. The taxable value may be reduced on /15 Tax Guide Fixed cost (R/p.a) Fuel cost (c/km) Maintenance cost (c/km) Exceeding assessment of the employee s income tax return in accordance with the ratio of business kilometres travelled to total kilometres travelled as substantiated by a log book. Further relief is available for the cost of licence, insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and the number of private kilometres travelled is substantiated by a log book. Interest and dividend income - natural persons exemptions Foreign interest and dividends No exemption applies to foreign sourced interest income. Where an individual holds less than 10% of the equity share capital of a foreign company, which distributes a dividend, the dividend will be taxed at a maximum effective rate of 15%, as determined by a formula.

7 Deductions from Income Current Pension Fund Contributions The deductible amount is the greater of: (1) 7.5% of remuneration from retirement funding employment, or (2) R Any excess may not be carried forward to the following year of assessment. Arrear Pension Fund Contributions Maximum of R per annum. Any excess over R1 800 may be carried forward to the following year of assessment. Current Retirement Annuity Fund contributions The deductible amount is the greater of: (1) 15 % of taxable income other than from retirement funding employment, or (2) R less current deductions to a pension fund, or (3) R Any excess may be carried forward to the following year of assessment. Arrear Retirement Annuity Fund contributions Maximum of R1 800 per annum. Any excess over R1 800 may be carried forward to the following year of assessment. Donations to certain Public Benefit Organisations The deduction is limited to 10% of taxable income before deducting medical expenses and donations. Retirement and Savings Reforms Contributions to Pension, Provident and Retirement Annuity Funds With effect from 1 March 2015 employer contributions to retirement funds on behalf of employees will be deemed to be a taxable fringe benefit in the hands of the employees. From that date, individuals will be allowed to deduct up to 27.5% of the higher of taxable income or employment income for contributions to pension, provident and retirement annuity funds. The maximum deduction will be capped at R per annum. Any excess over R will be carried forward and available for deduction in future tax years. Non-retirement / Tax preferred savings accounts Banks, asset managers, life insurers and brokerages will be able to offer individual savers a tax-preferred savings account in order to encourage household savings. An initial annual contribution limit of R 30,000 will apply, which will be increased annually in line with inflation, with a maximum lifetime contribution limit of R 500,000. Medical and disability expense Taxpayers may deduct from their tax liability a monthly tax credit of R257 for the first two beneficiaries and R172 for each additional beneficiary, in respect of medical aid contributions. A further deduction from the tax liability of taxpayers under the age of 65 is available. 4

8 INCOME TAX: Individuals The deduction from tax is calculated as 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the year. The deduction from tax is limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits). In the case of individuals who are over the age of 65, or individuals who are disabled or whose spouse or child is a person with a disability, a tax deduction, equal to 33% of qualifying medical expenses borne by the individual and an amount by which medical scheme contributions exceed 3 times the medical scheme fees tax credits for the year, is available. Personal insurance policies From 1 March 2015, contributions made in respect of life and disability insurance will not be tax deductible, with the concomitant proceeds on these policies being treated as tax-free. Submission of an Income Tax Return by an Individual Income tax returns have to be filed by individuals if they: are under 65 years of age and received an income of more than R from one or more sources or received more than R from a single source of employment, during the tax year are older than 65 but under 75 years of age and received an income of more than R from one or more sources or received more than R from a single source of employment, during the tax year are older than 75 years of age and received an income of more than R from one or more sources or received more than R from a single source of employment, during the tax year; OR at any time during the tax year: carried on any trade received a travel, subsistence or office bearer allowance hold any funds or assets outside South Africa that have a value of more than R received a local Capital Gain/Loss exceeding R hold any rights in a Controlled Foreign Company received any income or Capital Gain in a foreign currency received interest income from a source in South Africa earned an income through the letting of any property received an Income Tax Return (ITR12) from SARS or were requested to submit an Income Tax Return for the year in question /15 Tax Guide

9 International Executive Services Providing practical know-how to organisations enabling them to develop a globalised approach to managing individuals and cross-border employment within a pro-active, tax compliant environment. CAROLYN chambers (Johannesburg) M: E: carolyn.chambers@kpmg.co.za ZOHRA DE VILLIERS (Cape Town) M: E: zohra.devilliers@kpmg.co.za 6

10 INCOME TAX: Individuals Taxation of lump sum benefits Retirement and severance benefits The tax-free lump sum benefit upon retirement and in respect of severance benefits is increased from R in the 2013/14 tax year to R in the 2014/15 tax year. The rates for the taxation of lump sums upon retirement and in respect of severance benefits are set out below: 2014/15 tax year Taxable income Rates of tax R R R R % of amount % of the amount above % of the amount above and above % of the amount above Retirement fund lump sum benefits consist of lump sums from a retirement fund on death, retirement or termination of employment due to redundancy or termination of the employer s trade. Severance benefits consist of lump sums from or by arrangement with an employer due to termination of a person s office or employment where: a) the person is over the age of 55; or b) the termination is due to the person becoming permanently incapable of holding office ore employment due to sickness, accident injury or incapacity through infirmity of mind or body; or c) the termination is due to i) the person s employer having or intending to cease to carry on the trade in respect of which the person was employed or appointed; or ii) the person having become redundant in consequence of a general reduction in personnel or a reduction in personnel of a particular class by the person s employer, provided that where the person s employer is a company, the person did not at any time hold more than 5% of the issued shares or member s interest in the company. Taxation of lump sum benefits upon withdrawal from a retirement fund prior to retirement The tax-free lump sum benefit upon withdrawal from a retirement fund prior to retirement is increased from R in the 2013/14 tax year to R in the 2014/15 tax year /15 Tax Guide

11 Capital Gains Tax Effective CGT rates Type of taxpayer Inclusion rate % Statutory rate % Effective rate % Individuals and special trusts Companies Small business corporations Taxable income Personal service provider companies & Permanent establishments (branches) Non-residents (immovable property situated in or interest in property-rich entity with immovable assets situated in South Africa) Rates of tax R R R R % of amount % of the amount exceeding % of the amount exceeding and above % of the amount exceeding Other Trusts Exclusions: Annual individual and special trust exemption R On death, the exclusion granted to individuals during the year of death R The exclusion on a primary residence R2 million. Exclusion on disposal of a small business for persons over 55 R1.8 million if the market value of the business does not exceed R10 million. Most personal use assets. Retirement benefits. Payments made in respect of original long-terms insurance policies. 8

12 EMPLOYEES TAX (PAYE): Employers Employment Tax Incentive Purpose Provides employers with an incentive for creating jobs by offering a tax incentive in the form of a reduction from the employers Pay-as-you-earn liability Incentive is available monthly, from 1 January 2014 and will cease to exist from 1 January 2017 Applies to all new hires on/after 1 October Application An employer will be eligible to receive the incentive for qualifying employees if the employer: Is registered for the withholding of and payment of employees tax as per the Fourth Schedule to the Income Tax Act; Is not an entity specified in the Act, which prohibits such entity from constituting an eligible employer such as: The Government of the Republic; A public entity that is listed in Schedule 2 or 3 to the Public Finance Management Act, other than those public entities that the Minister of Finance may designate by notice in the Gazette or a municipal entity; A municipal entity defined in Section 1 of the Local Government Municipal Act. Is not disqualified from receiving the incentive arising from the displacement of an employee or failure to meet certain conditions prescribed by regulation (for example, a PAYE default) An employee is seen to be a qualifying employee if the employee: Is between the ages of 18 and 28 years old; or Is employed by the employer who operates in a special economic zone, or Is employed in an industry as designated by the Minister of Finance in the Gazette and Is in possession of either an identity card or an asylum seeker permit Is not a connected person to the employer Is not a domestic worker Was employed on / after 1 October 2013 and Must receive a salary between the minimum wage for that sector and R6 000 per month. The incentive will not be available if the employer: Fails to submit a return; or Has outstanding tax debt However the amount will be available, subject to limitations, once non-compliant taxpayers become compliant /15 Tax Guide

13 Calculation of the incentive The incentive is calculated according to the period of employment, based on the remuneration of the employee, that is: During each month of the first 12 months in respect of which The incentive is calculated as follows: MONTHLY RENUMERATION an employer employs a qualifying employee; and During each of the 12 months after the first 12 months that the same employer employs the qualifying employee Year 1 Year 2 Employment Tax Incentive per month during the first 12 months of employment of the qualifying employee Employment Tax Incentive per month during the next 12 months of employment of the qualifying employee R0 - R % of Monthly Remuneration 25% of Monthly Remuneration R R4 000 R1 000 R500 R <R6 000 Formula: R (0.5x (Monthly Remuneration - R 4 000)) If the qualifying employee is employed by an associated institution on / after 1 January 2014, the employee will be deemed to be in the employment of the employer for that period, therefore the combined number of eligible periods is 24 months. The incentive is apportioned if the employer employs a qualifying employee for part of a month. Penalty and disqualification for displacement An employer is deemed to have displaced an employee if: Dismissal constitutes an automatic unfair dismissal; and The dismissed employee is replaced by a qualifying employee, enabling Formula: R (0.25x (Monthly Remuneration - R 4 000)) the employer to be eligible for the incentive The employer will be liable for a penalty of R if it is found that the employer displaced an employee. In addition, the employer may be disqualified from receiving the incentive, after considering the number of employees that have been displaced and the effect of the displacement on employees. If an employer receives the ETI in respect of an employee that is paid below minimum wage, the employer must pay a penalty equal to 100% of the value of the ETI, and will be liable for a penalty with respect to the underpayment of employees tax as the ETI would have been disallowed. 10

14 INCOME TAX: Corporate Taxpayers General corporate tax proposals Debt Reduction Rules The Debt Reduction Rules were significantly amended as part of the 2012 Income Tax Amendments. In terms of these amendments the reduction of debts for no or insufficient consideration will be applied firstly to reduce the tax cost of assets acquired with that debt and / or to reduce capital losses. Only in instances where a deduction or allowance has been claimed and the asset is either no longer held or the tax cost is less than the amount of the debt reduction will an immediate tax charge be triggered. The reduction in the tax cost effectively defers any tax charge until the date that the asset is disposed of. Capital Gains Tax is no longer levied where the debt compromised was used to acquire assets of a capital nature. Further amendments are proposed in the Budget where debt is partially or fully discharged through the implementation of a business rescue. It is proposed that tax relief measures be considered for companies undergoing business rescue and other forms of debt compromise in order to ease their burden. Third-party backed shares The tax treatment of hybrid instruments has been a focus area for a number of years. With effect from years of assessment commencing on or after 1 January 2014, the dividends on preference shares will be re-characterised as income where either the dividends or the return of capital are guaranteed or indemnified. The current exceptions to this anti-avoidance rule only include the direct investment in preference shares used to fund the acquisition of equity shares in operating companies and requires that the party providing the indemnity or guarantee falls within a narrowly defined class of parties. The proposed refinement to the exceptions to the anti-avoidance rule will include: the refinancing of preference shares that were initially used to fund equity share acquisitions in operating companies; the inclusion of an exploration company in the definition of an operating company ; and a carve out where the pledges provided to the funder (i.e. the preference share holder) is limited to equity shares held by the acquiring company s (i.e. the preference share issuer) equity shareholders directly or indirectly in the underlying operating company. Limitation of interest deductions for reorganisations and acquisitions Legislation was introduced in 2011 targeted at limiting the deduction of interest on debt used to fund certain acquisition or reorganisation transactions. In terms of this dispensation, taxpayers are required to apply to the South African Revenue Service to claim a deduction of interest on these loans. With effect from 1 April 2014, the current discretionary system will be replaced with new provisions which limit the quantum of interest that can be claimed based on a percentage of adjusted taxable income /15 Tax Guide

15 Assessed losses brought forward are currently included in the calculation of taxable income and hence of the adjusted taxable income used for purposes of determining the interest deduction. It is proposed that these provisions be relaxed by ignoring assessed losses brought forward from prior years. Further, interest deductibility should increase when the average repo rate exceeds 8% (instead of the 10% currently legislated) and by taking into account the level of adjusted taxable income in the year prior to the transaction date. Venture Capital company tax regime Government is proposing certain relaxations to the venture capital company regime in order to encourage uptake thereof. Such relaxations/amendments may include making deductions permanent if investments are held for a certain period of time, the transferability of tax benefits when investors dispose of their holdings, the increasing of the total asset limit for qualifying investee companies and the waiver of capital gains tax in respect of the disposal of assets. Public-private partnerships The Income Tax Act requires that land be owned in order to claim capital allowances on qualifying improvements. When Government enters into public-private partnerships, it makes land available to the private party. The inability to claim a capital allowance on improvements to the land because the land is not owned, affects the financial viability of the project. It is proposed that the merits of allowing deductions where the taxpayer is not the owner of the land will be considered. Industry specific proposals: Financial Services Long-term insurance The reform of the income tax regime was announced in the 2013 Budget, particularly with regard to risk business no longer being taxed in the policyholder funds, but rather in the corporate fund. No legislation was tabled to give effect to this announcement in 2013, and this specific reform was reiterated in the 2014 Budget. In addition, the taxation rate of 30% being applied irrespective of the income level of policyholders in the individual policyholder fund, is also being reviewed. 12

16 Financial Services Tax: We have an experienced and passionate team who have been specialising in taxation for the financial sector for over a decade. These are some of the key areas we are currently advising on: The application of the section 24JB fair value rules for financial instruments. Fair value rules applicable to financial instruments within corporate treasuries. The application of the new REIT rules. Hedge fund structures in terms of old and new tax rules Implementation of share schemes Taxation of manufactured dividends and synthetic returns Michael Rudnicki M: E: michael.rudnicki@kpmg.co.za Instruments It is proposed that certain policies issued by insurers, such as endowment, smooth or stable bonus products that have a guaranteed value for policyholders be excluded from the scope of the provisions of the Income Tax Act which deal with the incurral and accrual of interest on instruments. Top-up retail savings bond A new top-up retail savings bonds will be introduced by National Treasury this year, and a Shariah compliant version (Sukuk) is also being explored. Industry specific proposals: Oil and Gas Oil and gas incentives An oil and gas company holding an exploration or production right, and that has entered into a fiscal stability /15 Tax Guide agreement with the government, is currently allowed to assign all of its fiscal stability rights to another oil and gas company. However, it was uncertain whether that oil and gas company could assign only a portion of its fiscal stability rights if it wanted to enter into a joint venture with another oil and gas company. To alleviate the uncertainty, it has been proposed that part assignments of fiscal stability rights would be allowed. Industry specific proposals: Fishing Fishing vessels registered in South Africa It is proposed that the allowance for repairs to ships, which has inadvertently been deleted from the Income Tax Act, be reinstated from the date of its repeal (12 December 2013).

17 Mining / Oil and Gas Tax Teams Specialist Mining / Oil and Gas tax solutions/advice Tax advice on Mining / Oil and Gas and BEE deals Mining royalty tax reviews Mining tax due diligences Oil and Gas tax due diligences Applications for upliftment of mining ringfences and effective valuations Assistance with SARS queries Diesel refund assistance Advice on Oil and Gas Farm in Farm out arrangements BEN-SCHOEMAN GELDENHUYS (Johannesburg) Mining M: E: ben-schoeman.geldenhuys@kpmg.co.za MUHAMMAD SALOOJEE (Johannesburg) M: E: muhammad.saloojee@kpmg.co.za DI HURWORTH (Cape Town) Oil and Gas M: E: di.hurworth@kpmg.co.za 14

18 INCOME TAX: Corporate Taxpayers Incentives Small and Medium enterprise development It is proposed that the turnover tax regime for micro business should be retained, but that the requirements should be simplified, that turnover up to R should not be taxed and that the maximum tax rate should be reduced from 6% to 5%. Other suggestions include doing away with the requirement for businesses to opt in to the regime for three years and requiring annual, rather than bi-annual tax returns. It is further recommended that the reduced tax regime for small business corporations be replaced with an annual refundable tax compliance rebate (subject to certain conditions). It is proposed that grants received by small and mediumsized enterprises should be tax exempt, regardless of the source of the funds. Philanthropic foundations The Income Tax Act provides a tax incentive for donations to qualifying public benefit organisations, including philanthropic foundations. These foundations aim to build up and maintain sufficient capital to provide financial support to worthy causes carried out by public benefit organisations. They have been required to distribute up to 75% of the money they generate within a year, unless they can demonstrate that the funds accumulated will be used for specific qualifying purposes. Because this requirement has been affecting the sustainability of these foundations, it is proposed to relax this requirement while ensuring that foundations distribute accumulated capital to worthy causes within a reasonable period. Private Equity Tax Services We are a private equity solution provider with strong credentials in the tax, legal and regulatory aspects of private equity. We provide a wide range of services and technologies that cater for all stages of the private equity life cycle. Michael Rudnicki M: E: michael.rudnicki@kpmg.co.za /15 Tax Guide

19 INCOME TAX: Corporate Taxpayers Environmental Taxes Carbon Tax The implementation of carbon tax is postponed to 2016, to allow for adequate time for consultation on draft legislation. Climate change As part of South Africa s commitment to reducing greenhouse gas emissions, the proposed carbon tax and incentives, such as the energy-efficiency tax incentive, will provide price signals to encourage the economy on a path of low-carbon growth over the long-term. Environmental conservation The incentive for land owners to enter into an agreement with Government to declare land as a nature reserve or a national park will be streamlined, by proposing a straight-line deduction over a period of 25 years of the adjusted value of the land at the time of entering into the agreement. Acid Mine Drainage Measures to address acid mine drainage, such as a potential environmental levy on the mining sector, will be explored in an attempt to compliment current efforts to address the serious environmental consequences of acid mine drainage. Research and Development (R&D) Research and development tax incentives Further changes to the R&D tax incentive legislation have been proposed, relating to the extent to which activities in respect of clinical trials may qualify as eligible R&D. In addition, further amendments to address unintended consequences relating to companies that fund R&D activities carried out by another party, can be expected. These changes will be retrospective from 1 January

20 R&D Tax and Incentives Advising on claiming the 150% R&D tax incentive R&D tax workshops to identify eligible R&D projects and costs Preparing pre-approval applications Liaison with DST and SARS Advising on applying for other Government Grants administered by the Department of Trade and Industry Review of legal agreements between taxpayers and external contractors and research institutions Global R&D planning MOHAMMED JADA (Johannesburg) M: E: CHRISTIAN WIESENER (Cape Town) M: E: /15 Tax Guide

21 Capital Allowances for Businesses Buildings Industrial (used in manufacturing or a similar process) % Commenced 1/7/96 30/9/99 10 After 1 January Other 2 New and unused commercial buildings and improvements 5 Hotels Annual Allowance; Erection of building or qualifying improvements commenced: Before 4 June From 4 June 1988 onwards 5 From 17 March 1993, but only in respect of improvements that do not extend the 20 existing exterior framework Hotel equipment brought into use after 15 December Intellectual Property INCOME TAX: Corporate Taxpayers Costs incurred in acquiring: % Inventions, patents or copyrights 5 Designs 10 % 18

22 Research and Development (R&D) Costs incurred in any year of Assessment: % Systematic investigative or experimental 150 activities of which the result is uncertain for discovering non-obvious scientific or technical information, or creating any invention, design or computer program. Buildings 5 New and unused machinery or plant used for R&D 40/20/20/20 purposes Plant and Machinery Manufacturing or similar (new only) 40/20/20/20 Renewable energy technology equipment 50/30/20 Small business corporations Manufacturing assets 100 Other depreciable assets 50/30/20 (General regime optional) Corporate Tax Rates INCOME TAX: Corporate Taxpayers Basic rate (other than entities specified below): 28% Small business corporations (financial years ending on any date between 1 April 2014 and 31 March 2015): Taxable income Rate of Tax R0 R % of taxable income R R % of taxable income above R R R R % of taxable income above R R and above R % of the amount above R /15 Tax Guide

23 INCOME TAX: Corporate Taxpayers An elective presumptive turnover tax applies for microbusinesses (financial years ending on any date between 1 April 2014 and 31 March 2015): Turnover Liability R0 - R % R R % of each R1 above R R R R % of the amount above R R R R % of the amount above R R and above R % of the amount above R KPMG LINK 360 KPMG LINK 360 aligns tax and finance with the rest of the organisation and delivers a 360 degree view of a company s global compliance position across teams, across divisions and across borders. Global Compliance Management Services BRIGITTE WEBB M: E: brigitte.webb@kpmg.co.za ELIZABETH LOMBAARD (Cape Town) M: E: elizabeth.lombaard@kpmg.co.za

24 CORPORATE TAX - Creating Tax Synergy We believe that the active management of corporate tax issues is a core business discipline. We provide insight, business understanding and a composite solution in any tax environment. MUHAMMAD SALOOJEE (Johannesburg) M: E: muhammad.saloojee@kpmg.co.za JOUBERT BOTHA (Pretoria) M: E: joubert.botha@kpmg.co.za DEBORAH TICKLE (Cape Town) M: E: deborah.tickle@kpmg.co.za YASMEEN SULIMAN (Durban) M: E: yasmeen.suliman@kpmg.co.za TANETTE NELL (Port Elizabeth) M: E: tanette.nell@kpmg.co.za

25 INCOME TAX: Corporate/Individual Taxpayers Tax Calendar Provisional tax individual / company 1st Payment within 6 months after previous tax year 2nd Payment on tax year end 3rd Payment Voluntary payment made within 7 months after tax year end (if tax year end is 28/29 February), or voluntary payment made within 6 months after year end (if tax year end falls on any other date). Individuals who on the last day of the year of assessment will be below the age of 65 years who do not carry on a business and whose taxable income will not exceed R or whose taxable income from interest, foreign dividends and rental will be R or less will be exempt from provisional tax. Individuals who on the last day of the year of assessment will be over the age of 65 years are exempt from provisional tax if they are not directors or private companies and only receive employment income, interest, rental or dividends amounting to taxable income of up to R Provisional tax penalties on underestimation An underestimation penalty will be levied on second provisional tax estimations as follows: Where the final actual taxable income is more than R 1 million: A 20% penalty may be levied if the combined first and second provisional tax payments are less than 80% of the tax on the actual taxable income for the year of assessment. In any other case: A 20% penalty will be levied if the combined first and second provisional tax payments are less than 90% of the tax on the actual taxable income for the year of assessment and are also less than the basic amount. The penalties may be waived at the discretion of SARS. 22

26 Fixed-amount penalties INCOME TAX: Corporate/Individual Taxpayers Interest Rates Rate of interest Rate (from 1 February 2014) Fringe benefits - interest-free or low-interest loan (official rate) 6.5% per annum Rate of interest Rate (from 1 March 2011) Rate (from 1 May 2014) Late or underpayment of tax 8.5% p.a. 9% p.a. Refund of overpayment of provisional tax 4.5% p.a. 5% p.a. Refund of tax on successful appeal or where the appeal was conceded by SARS 8.5% p.a. 9% p.a. Refund of VAT after prescribed period 8.5% p.a. 9% p.a. Late payment of VAT 8.5% p.a. 9% p.a. Customs and Excise 8.5% p.a. 9% p.a. There are a number of obligations that a taxpayer is legally required to comply with, and a fixed amount penalty is imposed when a taxpayer does not comply with an obligation. The amount of the penalty imposed in a penalty assessment will increase automatically for each month, or part thereof, that the person fails to remedy the non-compliance within one month after: the date of the delivery of the penalty assessment, if SARS is in possession of the current address of the person and is able to deliver the assessment, but limited to 35 months after the date the date of assessment of the penalty; or the date of the non-compliance if SARS is not in possession of the current address of the person and is unable to deliver the penalty assessment, but limited to 47 months after the date of non-compliance /15 Tax Guide

27 The table below reflects examples of what could attract a fixed-amount administrative non-compliance penalty. Duty Penalties could be imposed for: not registering when required to Registration registering outside of the time prescribed to register requirements not completing a registration form in full or correctly not submitting the supporting documentation Not informing SARS when there is a change If there is a change of a postal, physical or electronic address; to registration to the representative taxpayer; or details to banking details. not filing a return at all not filing a return on time Returns not using the prescribed form not signing the return as required Not retaining records in their original form or in an authorised manner Retaining records Not retaining records for the prescribed period Not keeping the records open for inspection by SARS Not attending an interview when requested Information Not providing material available when requested at all or on gathering time Not co-operating during a field audit or investigation Not giving full and accurate information when requesting a Debt management deferred or instalment payment arrangement Dispute Resolution and Tax Controversy Services Dealing with tax disputes can mean uncertainty and complexity. KPMG has the experience to help you take control of the dispute resolution process. JOHAN VAN DER WALT Head of Dispute Resolution & Controversy services M: E: johanvdwalt.tax@kpmg.co.za MUHAMMAD SALOOJEE Partner: Corporate Tax M: E: muhammad.saloojee@kpmg.co.za 24

28 INCOME TAX: Corporate/Individual Taxpayers The Act specifies precisely what amount is imposed for non-compliance. As can be seen from the table below, the amount depends on the amount of the taxpayer s taxable income or assessed loss for the preceding year of assessment. Item Assessed loss or taxable income for preceding year Penalties R R R Assessed loss Above Understatement penalties In the case of tax being underpaid because of an understatement made by a taxpayer, Section 223 of the Tax Administration Act provides for different rates of understatement penalties based on the type of behaviour or the degree of culpability involved. These rates are as follows: Behaviour Standard case If obstructive, or if it is a repeat case Voluntary disclosure after notification of audit Voluntary disclosure before notification of audit (i) Substantial understatement 10% 20% 5% 0% (ii) Reasonable care not taken in completing return 25% 50% 15% 0% (iii) No reasonable grounds for tax position taken /15 Tax Guide 50% 75% 25% 0% (iv) Gross negligence 100% 125% 50% 5% (v) Intentional tax evasion 150% 200% 75% 10%

29 INCOME TAX: International Taxpayers Secondary adjustment for transfer pricing It has been recommended that the application of the secondary adjustment in the form of a deemed loan be removed and the transfer pricing provisions be amended to state that the secondary adjustment is deemed to be a dividend or capital contribution depending on the facts and circumstances. High tax exemption for Controlled Foreign Companies ( CFC ) Section 9D of the Act requires that the net income of CFCs is taxed in the hands of the South African resident participant unless an exemption applies. One such exemption is the high tax exemption which deems the net income of the CFC to be nil if the foreign tax suffered by the CFC is at least 75% of the hypothetical South African income tax liability. Currently the high tax exemption requires an actual calculation to be performed to determine the hypothetical South African income tax which is compared to the actual foreign tax suffered by the CFC to determine whether the high tax exemption applies. This calculation has proved to be an administrative burden where the South African resident owns many foreign companies and most of the income of the CFC is attributable to a foreign business establishment. Accordingly it has been proposed that an option be provided to deem the net income of a CFC to be nil if either the high foreign tax or the foreign business establishment test, when applied to aggregate taxable amounts, is met. Foreign dividends of CFCs owned by individuals If a CFC of a resident individual receives a taxable foreign dividend the effective tax rate on the dividend is 21%. Accordingly it has been proposed that the ratio in section 10B be changed to reflect that an individual (not a company) is taxed with reference to the foreign dividend. Currency of assets reacquired by persons who cease to be a resident Currently a person who ceases to be a South African resident is deemed to have disposed of and reacquired shares in a South African property rich company. There is uncertainty as to which currency the share reacquisition takes place in. Therefore it has been proposed that this is clarified to ensure that when the shares are disposed of in the future there is no uncertainty of the base cost of the shares. Real estate investment trust (REIT) When determining whether a company is a property company, in the context of REITS, one of the tests refers to a percentage of assets which is attributable to immovable property which is reflected in the Annual Financial Statements which have been prepared in accordance with the South African Companies Act. However, foreign companies would not be required to comply with the Companies Act, therefore, it has been proposed that the Annual Financial Statements which comply with the International Financial Reporting Standards should be taken into account when calculating the aforementioned percentage. 26

30 INCOME TAX: International Taxpayers Exchange Control Introduction of foreign member funds A proposal was made to introduce foreign member funds which are not subject to the macroprudential limit. The introduction of these funds aims to support South Africa as a hub for African fund management. These funds will also introduce a new domestically-regulated channel that provides foreign exposure to domestic investors. It is proposed that these foreign member funds would be collective investment schemes and alternative investment funds (which includes private equity, venture capital and hedge funds), which may source funding from: Non-residents; Domestic institutional funds (subject to their macroprudential limit); and Individuals (subject to their annual investment limit). Foreign member funds must meet the following requirements: The funds must be domiciled and managed in South Africa; The funds must be tax compliant in South Africa; and These funds are subject to the registration with the Financial Services Board and the Reserve Bank. HoldCo subsidiary regime JSE listed companies In 2013 it was announced that JSE listed /15 Tax Guide companies may establish a Holdco to hold African and offshore operations. The following changes to this regime are proposed: The allowed transfer to HoldCo is increased from R750 million to R2 billion per year; There will be no restrictions on the transfers in and out of the HoldCo (up to the allowed amount), subject to regular reporting requirements. Furthermore the transfer must not be made in order to avoid tax; and The listing of the HoldCo and joint ventures will be considered on a caseby-case basis. The other requirements remain in place, namely: The HoldCo must be incorporated in South Africa; Must be a South African tax resident; and Must be effectively managed in South Africa. Unlisted companies It is proposed that the HoldCo regime be extended to unlisted companies. The same restrictions as listed companies apply, however the size of transfers to HoldCo is limited to R1 billion per year. The unlisted companies must have similar transparent and public reporting and disclosure requirements as listed companies in order to qualify for this regime.

31 Tax treatment All HoldCo s may use the Treasury Management Company tax concessions, namely that they are allowed to use their functional currency, not rand, for purposes of calculating foreign exchange gains and losses for tax purposes, thereby providing relief for unrealised foreign currency gains and losses. Accessing capital for growth into Africa To enable South African technology, media, telecommunications, exploration and other research and development companies help raise capital to expand their business in Africa and in other fast-growing emerging markets, the following is proposed: Companies in these industries that are currently unlisted in South Africa will be allowed to freely list offshore, provided they retain South African incorporation, remain tax residents, are effectively managed from South Africa, and their intellectual property remains registered in South Africa. Such companies will further be required to have a secondary listing in South Africa within two years of their successful offshore listing. Listed companies in these industries will be allowed to freely list secondary listings and depository receipt programmes, subject to reporting requirements. Intellectual property generated in South Africa may be freely assigned offshore, subject to appropriate tax treatment. Corporate foreign direct investment It is proposed that should companies obtain approval for foreign direct investment and the investment limit was not fully utilised in a specific year, the company will be allowed to roll over any unused portion to the next calendar year, without submitting a new approval application. International Tax and Transfer Pricing International tax solutions and transfer pricing systems that work. ROBYN BERGER (Johannesburg) M: E: robyn.berger@kpmg.co.za NATASHA VAIDANIS (Johannesburg) M: E: natasha.vaidanis@kpmg.co.za DEBORAH TICKLE (Cape Town) M: E: deborah.tickle@kpmg.co.za

32 INDIRECT TAX: VAT Indirect exports The export incentive scheme which currently allows the zero rate of indirect exports where the goods are shipped from a qualifying airport or harbour (i.e. by air or sea), will be replaced by new export regulations which will require legislative amendments. SARS published a revised Export Incentive Scheme, which allows the option to zero rate exports by road and rail, mainly to facilitate trade with African countries. Due to various strict conditions contained in the draft provisions, the practical application will only become apparent after the introduction of the new rules, which are still in draft. VAT registration of foreign businesses The VAT registration provisions in relation to foreign suppliers of electronic services were introduced in the Taxation Laws Amendments Act, 2013 with effect from 1 April The definition of electronic services has been included in a draft regulation and will result in the VAT registration of foreign suppliers supplying electronic services to both South African business customers (B2B) and private consumers (B2C). A National Treasury and SARS workshop was held on 20 February 2014 to discuss the draft regulation and public comments submitted to National Treasury and SARS. The issue of B2B supplies will be further considered by National Treasury and SARS and it is envisaged that an amended draft regulation will be published for public comments, which will be discussed at a futher workshop to be held on 19 March Going concerns VAT legislation and Interpretation Note No 57 relating to the VAT treatment on the disposal of a going concern will be clarified. According to the Interpretation Note, the recipient must agree that it will be a vendor at the effective date. The legislation will be amended to remove the uncertainty regarding whether a person must be a vendor before the acquisition of the going concern. Documentation The customs modernisation programme has eliminated the need for paper-based documents to be generated and issued to taxpayers. The documents that are legally required to substantiate the VAT treatment of cross-border transactions will be aligned with the modernised customs processes and procedures. Tax invoices, debit and credit notes A supplier, being a registered vendor (the principal), is required to issue a tax invoice within 21 days of the date of the supply. This time limit will be extended to agents. The legislation will be similarly amended to set a time limit in which a credit or debit note must be issued /15 Tax Guide

33 are exempt from VAT. This will be amended to include the supply of administration services for which the bargaining council receives a separate fee (the interest that it is entitled to in terms of the main collective agreement). Zero-rating of goods for agricultural, pastoral or other farming purposes Agents There has been uncertainty as to which documentation is acceptable as proof of payment to entitle a vendor to deduct input tax in respect of VAT paid on the importation of goods. Clarity will be provided in this regard. Contract Prices A supplier of goods or services is able to recover from the recipient an amount of VAT imposed on the supply after the agreement is concluded. The legislation will be amended to exclude suppliers who failed to register as VAT vendors. Bargaining Councils Goods and services provided by a bargaining council to its members, based on membership contributions, The VAT Act provides for zero-rating where a supply of goods is used or consumed for agricultural, pastoral or other farming purposes. This concession was intended to provide cash-flow relief to the agricultural sector. This zero-rating provision will be reviewed in consultation with relevant stakeholders for possible replacement with VAT at the standard rate, as a result of past abuse of the provision. Four-monthly VAT category Government proposes to eliminate this category and to bring registered vendors under this category into the bi-monthly VAT system. VAT interest calculations Interest is charged on late VAT payments for a period in excess of the actual number of days between the due date and the date of payment. It is proposed that the interest rules under the Tax Administration Act (excluding monthly compounding) be activated for this circumstance, ensuring that interest is imposed and paid on a fair basis. 30