SARS recently published two Binding General Rulings (number 40 and 41) that have put the tax treatment of non-executive director’s fees to bed, which will come in effect on 1 June 2017.
As it stands, a Non-Executive Director (NED) earning more than R1 million in director’s fees in any 12-month period should register for VAT.
What will happen when the Rulings become effective?
BRG40: Director fees paid to a Non-Executive Director (NED) do not qualify as remuneration and there is no employees’ tax withholding obligation for the employer.
BRG41: Non-Executive Directors (NEDs) must register for VAT and account for VAT on the fees charged to the company. A non-resident Non-Executive Director (NED) may also be liable to register for Vat, if the services are physically performed in South Africa on a continuous or regular basis, or if the services are conducted on a continuous or regular basis through a fixed or permanent place in South Africa, this will place an additional admin burden on the non-resident Non-Executive Director (NED).
What is the role of Non-Executive Directors (NEDs)
Independence is central to the NED’s role and is interpreted to mean “the absence of undue influence and bias”. Since the Income Tax Act, No 58 of 1962, does not define a non-executive director (NED), SARS shares the view of the King III report in Binding General Ruling 40 (BGR40).
The King III Report on Governance for South Africa states that the crucial elements of an NED’s role are that an NED –
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