People say that business cards are no longer relevant. I say, no!

When I left my full time job three and a half years ago, on the first morning I sat down and thought to myself, what shall I do today? Well, I did what you always do when you have nothing to do, I tidied my study, soon to be office. As I carried on, I stumbled upon a batch of business cards I collected over (almost) 5 years I met different people during my time of employment at an earlier company. It hit me, these people are all part of my gateway to new business. I started e-mailing each and every one of them, explaining that I now fly solo and that, to be frank, I need business. Little did I know…

Within 2 hours, I had three meetings setup and within a week from that day, my diary was booked for 6 months. I can therefore safely say, I had several people whom believed in me at a time I had really only my previous knowledge to offer.

For that, I will be forever grateful.

My business card folder is my prized business possession, growing in stature monthly.

Please share if you agree.

3 main requirements to ensure your ‘Small Business Corporation’ qualifies for tax benefits and exemptions

Small, Medium or Micro Enterprises (SMMEs) and Small Business Corporations (SBCs) can both benefit from special tax rates and exemptions.

But the benefits for each of them are different to one another, with the benefits for SBCs being the greatest.

So to avoid being penalised for applying for the benefits and exemptions of a SBC when you’re actually not one, take note of these 3 requirements for determining whether you are:
Requirement#1: Ownership

An SBC must be an incorporated business, such as a close corporation, a cooperative or a private company.

Requirement#2: Turnover

There are 2 main turnover requirements for you to be considered an SBC and they are that:

1. You must have a gross income of less than R 20 million in a tax year (12 months), with it being prorated for periods less than 12 months; and

2. Investment income and income gained from providing services may not comprise more than 20% of the sum of the gross income and capital gains (i.e. Capital gains + gross income).

TIP: You can determine if you’ll exceed the limit of R20 million in a full tax year by dividing the amount of your current turnover by the number of months you’ve traded, and then multiplying it by 12.

For example, if you’ve traded for 6 months, and your turnover for that is R12 million, then:
12 000 000 / 6 = R2 million  X  12 = R24 million. Therefore, in this example, you would not qualify as an SBC.

Requirement#3: Business Activity

The company can’t be a personal service provider.

A personal service provider refers to any company, CC or trust that provides a service to you by using a person who’s personally connected to your company, CC or trust.

Those were 3 requirements you must meet in determining whether or not you’re an SBC.

The above was just a brief, and general, overview of the requirements. There are still many more specific and critical details regarding each of those requirements which you simply have to know.

 

For more information, contact me for a free consultation.

You and Budget 2017: Tax Increases Are Now the Order of the Day

This budget is one of the most anticipated for many years with many questions still needing answers:

  • How will the expected tax increases pan out?
  • Will the Minister of Finance and his deputy keep their jobs?
  • Will the budget incorporate “radical economic transformation” which has become the President’s mantra in the past few months?
  • How will the ratings agencies view the budget and do we now face a ratings downgrade?

The tax increases

The Minister needed to raise R28 billion in additional revenue which will come from:

  • Increasing the marginal income tax rate from 41% to 45%. The maximum threshold will be reached when your taxable income exceeds R1.5 million. This will affect just over 100,000 taxpayers and is expected to add R4.4 billion to tax collections
  • Bracket creep will add R12.1 billion to tax revenue. “Bracket creep” means increasing marginal tax bands by less than inflation, thus giving the Treasury additional revenue and costing taxpayers more
  • Increasing dividend tax from 15% to 20% – adding R6.8 billion tax revenue
  • Increase in “sin” taxes and fuel levies – another R5.1 billion
  • “Sugar tax” will be introduced sometime in 2017 depending on when the legislation is passed by Parliament. The proposed rate of tax has been reduced from 20% to approximately 11%
  • Carbon tax has been on the cards for a while but looks unlikely to become effective until 2018.

In addition, the Voluntary Disclosure Program runs to 31 August. So far almost R4 billion in offshore assets has been disclosed and this will bring R600 million to the fiscus.

These increases should bring in more than R28 billion but Treasury is now nervous about the ability of SARS to continue to deliver increased revenue as it has done for years. In 2016/17 revenue collections are estimated to fall R27 billion short of target. Some ascribe this to the ructions in SARS which has seen the bulk of senior management departing but it is not possible to indefinitely increase revenue targets, particularly when the news is filled with stories about corruption. At some stage reality kicks in and that is happening now.

Treasury will now carefully need to rethink tax policy and that taxes like a VAT increase cannot be deferred much longer. Already consideration is being given to adding VAT to the fuel price (it is currently zero-rated)

The good news…

  • Transfer duty will now only apply to property sales of R900,001 or more (previously R750,001). This will give R400,000 back to taxpayers and will hopefully stimulate property sales to first-time and buy-to-let buyers.
  • R20 billion will be cut from government expenditure. No specifics were given but expenditure targets have generally been met.
  • R3.9 billion will be allocated to small business.
  • The tax free savings allowance has been raised from R30,000 to R33,000.
  • The Treasury and business cooperation has worked well so far and helped to avert a ratings downgrade. Business plans to offer one million apprenticeships to the youth over the next three years. In addition, R1.5 billion has been paid into a fund to assist small businesses.

This cooperation with business (add to this labour with the agreement on the minimum wage) does add a new dynamic into the economy. Minister Gordhan often spoke of a new social cohesion to help economic growth and this is evidence that this is beginning to show positive results.

  • Inflation will fall from 6.6% now to 5.7%.
  • GDP will grow 1.3% this year versus 0.4% last year.
  • The budget deficit will come in at 3.1% of GDP versus 3.2% this year.
  • An additional R5 billion has been set aside for student fees.

There are still perils out there

The sovereign debt of the country has risen over the past 8 years and now stands at 50.7% of GDP. If you add in the State entities (Eskom, SAA, Transnet etc) this rises to more than 60%. This translates to R169 billion interest being paid by the state – interest is the fastest growing expense in expenditure.

Perhaps more significantly, economic growth has stagnated. As can be seen above it is becoming more difficult to increase taxes and thus the way out of a growing budget stalemate is economic growth. Structural reforms are needed to kick start the economy but there seems to be little political will to do this.

The downgrades

Ratings agencies want to see financial discipline, less political instability and a path to revive economic growth. Time will tell how the country can tackle the latter two problems.

The Budget is redistributive

62% of income tax will be paid by those with taxable incomes greater than R500,000. No one doubts the fairness of the wealthy paying more tax but the wealthy are being hammered – consider also dividend and capital gains taxes also rising. Tax revenues are starting to fall and there is every chance the wealthy will start looking at legitimate ways to reduce future tax liabilities.

“Radical economic transformation”

The Minister spoke of transformation more than fifty times. “Radical economic transformation” is the new policy the president has adopted. For this to reflect in the 2017/2018 numbers, it requires a complete shift in the way Treasury compiles the budget. As it came late in the year, Treasury did not have the time to respond to this paradigm shift. Thus, whilst the Minister spoke of “radical economic transformation” in reality the budget was a continuation of previous budgets.

Nevertheless he did deliver one or two home truths such as “We need to transform in order to grow; we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage”.

Minister Gordhan has again delivered a credible Budget. Clearly, also the time has come to take the necessary steps to grow the economy.

YOU AND BUDGET 2017 PART 2: THE NEW TABLES   

For ease of reference please find below –
•    The new tax tables for individuals and trusts other than special trusts
•    The new tax tables for Small Business Corporations
•    The new transfer duty rates

Source:   National Treasury

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)