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Non-Executive Directors of Companies Must Register for VAT

03 Mar 2017

Conrad SmithThe South African Revenue Service (“SARS”) has issued two binding general rulings on 10 February 2017 confirming the interpretation as of 1 June 2017, which requires non-executive directors (“NED’s”) of companies to register for VAT in respect of director’s fees earned for services rendered as a non-executive director.

The normal VAT rules are applicable where fees exceed the compulsory VAT registration threshold of R1 million in any 12-month period, but NEDs can
also register voluntarily.

The fees earned by NED’s were previously subject to employees’ tax because the fees received were considered remuneration. There was however uncertainty of this treatment after amendments to the Fourth Schedule of the Income Tax Act No. 58 of 1962.  After consideration of the law, SARS has now confirmed that NED’s are regarded as “independent contractors” and fees paid to NED’s are not considered remuneration.

NED’s receiving director’s fees exceeding the compulsory VAT registration threshold of R1 million are therefore required to register as VAT vendors from 1 June 2017. NED’s will not be required to account for VAT prior to this period, provided that the fees earned were subject to PAYE.

 

For more information regarding any enquiries on PAYE, VAT and income tax, you are welcome to contact Conrad Smith at our Somerset West office on Tel. 021 852 0382

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