Customs for individuals travelling abroad and returning to South Africa

Finance News , ,

The South African Revenue Service (SARS) recently published a media release to clarify the confusion about the customs requirements for South African travellers returning from abroad regarding their personal effects (such as laptops and other electronic equipment). The confusion stems from various media reports on the inconsistent treatment of returning travellers by customs officials, some having to pay a fine when they could not produce a proof of purchase.

 

SARS confirms that in terms of current customs legislation, travellers are not required to declare their personal effects when leaving the country and they cannot be penalised for not doing so. The practical difficulty that travellers face, however, if they do not declare their personal effects on departure is that upon return, customs officials may require that they produce proof of local purchase to prove that the goods are not ‘new or used goods acquired whilst abroad’ and which could attract duty implications. Customs officials have discretionary powers of what would constitute sufficient proof. There is, however, an option available to travellers if they want to ensure that the proof they produce is sufficient for the customs official, and which exists in terms of the ‘registration for re-importation’ framework.

 

Travellers can complete a TC-01 Traveller Card indicating their intent to register goods for re-importation (the TC-01 form is available on the SARS website for download). The form is very user-friendly and only requires minimum information to be completed, including personal and travel details. A customs official captures the details from the TC-01 form on an online traveller declaration system at a port of departure. After digital authentication, the traveller is presented with a copy to retain the proof of registration. This registration can remain valid for a period of up to six months.

 

The TC-01 form is also a useful guideline on the goods that may be imported duty-free into South Africa, including 2 litres of wine, 1 litre of other alcoholic beverages, 200 cigarettes and up to 50ml of perfume. Importantly, this allowance is available once every 30 days, and only after 48 hours of absence from South Africa.

 

SARS has also confirmed that customs officials have been provided with the new guidelines, as well as reinforcing its internal procedures. Although it is likely that there could be some practical issues with the traveller card system initially, it is important that travellers are aware of their rights and start using the system. Travellers are encouraged to download and complete the TC-01 form well in advance of travel and confirm the operating times of the customs desk at the airport where they depart from and return to, to ensure a smoother transition through customs on return.

 

This article is a general information sheet and should not be used or relied on as legal or other 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)

The interpretative value of SARS interpretation notes

Finance News , ,
In terms of section 4 of the South African Revenue Service (SARS) Act,[1] one of the objectives of SARS is to secure the efficient, effective and widest possible enforcement of tax and related acts. One of the methods employed by SARS in this mandate is through the publication of official documents on the application, or SARS’s interpretation, of the acts which they administer – namely Interpretation Notes, which are generally available to taxpayers.

 

In a unanimous judgment on 25 April 2018, in the matter of Marshall and Others v Commissioner, South African Revenue Service,[2] the role of Interpretation Notes in the interpretation of statutes was considered. The judgment is of particular importance, since it has been generally accepted that Interpretation Notes provide context to legislation and “constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question”,[3] but the weight that should be attached to Interpretation Notes during statutory interpretation, was unclear.

 

The case involved the interpretation of two sections of the Value-Added Tax Act,[4] dealing with the VAT treatment of payments received by the South African Red Cross Air Mercy Service Trust for services rendered to provincial health departments. The applicant was of the view that the SCA placed undue reliance on SARS’ Interpretation Note 39 in formulating its interpretation of the relevant sections, since it gives “rise to unequal treatment of the litigating parties and fly in the face of the right to a fair hearing.”

 

The Constitutional Court found that, in the context of statutory interpretation, an approach whereby reliance is placed on an interpretation which accords with a consistent application by those responsible for the administration of the legislation requires re-examination, especially in a constitutional democracy.

 

In arriving at a conclusion, Justice Froneman indicated the following:

 

Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision? It might conceivably be justified where the practice is evidence of an impartial application of a custom recognised by all concerned, but not where the practice is unilaterally established by one of the litigating parties. In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.

 

This makes it clear that courts should make an objective and independent interpretation of legislation and that Interpretation Notes (and arguably other interpretative materials), should be irrelevant to such an interpretation. Since SARS is often a party to tax litigation, Interpretation Notes containing their interpretation of legislation, cannot be considered independent. Despite the appeal being dismissed based on the finding that the SCA indeed interpreted the legislation independently and objectively, the judgment provides clear indication of the role of Interpretation Notes in fiscal interpretation. In short, it carries no value.

 

[1] 34 of 1997.

[2] [2018] ZACC 11.

[3] Dambuza JA in Commissioner, South African Revenue Service v Marshall NO [2016] ZASCA 158; 2017 (1) SA 114 (SCA) (SCA judgment).

[4] 89 of 1991 (the VAT Act).

 

This article is a general information sheet and should not be used or relied on as legal or other 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)

Buying out shareholders

Finance News , ,
We are often approached by clients to advise on the most tax efficient manner in which a shareholder can sell an investment in a private company. Typically, the parties involve a majority shareholder of a company that is interested in buying out the minority shareholders in the company and which will ensure that that majority shareholder becomes the single remaining shareholder of that company.

 

In essence, two options are available through which a shareholder may dispose of a share in a company to achieve the above goal: it could either sell its shares to the purchasing shareholder, or it could sell the shares owned back to the company (i.e. a so-called “share buyback”). These two different options have varying tax consequences, and taxpayers should take care that these (often material) transactions are structured in the most tax appropriate manner possible.

 

Where a share is sold to another shareholder, the selling shareholder will simply pay a capital gains tax related cost. For companies, such capital gains tax related cost will effectively be 22.4% of the gains realised, whereas the rate for trusts is 36% (if gains are not distributed to beneficiaries), or up to 18% if the seller is an individual.

 

Where shares are however sold back to the company whose shares are being traded, that share buyback constitutes a dividend for tax purposes (to the extent that contributed tax capital is not used to fund that repurchase). Capital gains tax is therefore no longer relevant, but rather the dividends tax. Dividends would typically attract dividends tax (levied at 20%), rather than capital gains taxes.

 

It may therefore be beneficial for an existing shareholder (that is itself a company) to opt for its shares to be sold back to the company whose shares are held (and which shares are therefore effectively cancelled), rather than to sell these to the remaining shareholders and pay capital gains tax. This is because if the shares are sold to the remaining shareholders, a 22.4% capital gains tax related cost arises. However, where the shares are bought back, the “dividend” received by the company will be exempt from dividends tax and therefore no dividends tax should arise, since SA resident companies are exempt from the dividends tax altogether. A company selling its shares back to the entity in which it held the shares may therefore dispose of its investment without paying any tax whatsoever: no capital gains are realised since the shareholder receives a “dividend” for tax purposes, and the dividend itself is also exempt from dividends tax.

 

Share buybacks have become a hot topic recently and National Treasury has now moved to introduce certain specific anti-avoidance measures and reporting requirements that apply in certain circumstances. Still, there are perfectly legitimate ways in which to structure many corporate restructures where a buyout of shareholders takes place, and taxpayers will be well-advised to seek professional advice to ensure that such transactions are structured in as tax effective manner as possible.

 

This article is a general information sheet and should not be used or relied on as legal or other 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)

Withdrawal of vat relief for residential property developers

Finance News

Section 18B of the Value-Added Tax Act was introduced effective 10 January 2012 in a bid to grant relief for residential property developers caused by the slump in the property market at that time. Many property developers, registered for VAT, would develop residential properties with a view to dispose of these properties in the short-term as trading stock and as part of its VAT enterprise. However, following the global financial crisis of little less than a decade ago, many property developers found themselves in a position where they were increasingly forced to rent out residential properties once a development was completed due to the slower rate at which properties could be disposed of compared to earlier.

 

The letting of residential property is typically exempt from VAT. Due to a change in use of the properties therefore (albeit temporarily) from being held for sale as trading stock to now being put up to be let in the interim while being on market constituted a change in use of the properties. Due to the change in use of the properties, from being used to make taxable VAT supplies in the ordinary course of business and being sold as trading stock by the developer, to now being used to make VAT exempt supplies in the form of being used to generate residential rental income, the provisions of section 18(1) of the VAT Act would ordinarily have applied. In terms of section 18(1), where goods have been acquired previously for purposes of making VATable supplies, and these goods are subsequently used to make exempt supplies, the VAT vendor must be deemed to have disposed of all those assets for VAT purposes. In other words, even though no actual disposal of assets has taken place, such a disposal is deemed to take place for VAT purposes and which gives rise to output VAT having to be accounted and paid for by the developer based on the open market value of the property at that stage.

 

As one could quite easily imagine, having to account for output VAT in these circumstances may be prohibitive, especially considering that the value of a property will likely have been enhanced due to the development and that VAT inputs thus far claimed by the developer would be overshadowed by the output VAT amount that is now required to be claimed.

 

It is in acknowledgement hereof that section 18B was introduced to the VAT Act in 2012. In terms of that provision, property developers were granted a 36-month grace period within which to sell properties, and during which time these residential properties could be rented out without a deemed supply being triggered for VAT purposes.

 

When introduced originally, it was made clear at that stage that the relief for temporary letting as explained above will only be in effect until 1 January 2018. However, it is arguable that the property market has not recovered sufficiently yet for the relief to be withdrawn at this stage.

 

This article is a general information sheet and should not be used or relied on as legal or other 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)

Interest received by non-residents on SA bank accounts

Finance News

Persons that are not tax resident in South Africa (“SA”) are only taxed in SA on income received by or which accrued to such non-resident from an SA source. This will include interest received on an SA bank account.

 

Non-residents may, however, be exempt from SA income tax on interest earned in terms of section 10(1)(h) of the Income Tax Act. The section 10(1)(h) exemption does not apply though to the extent that the non-resident is a natural person who was physically present in SA for a period exceeding 183 days in the 12-month period preceding the date on which the interest was received by or accrued. In these circumstances, the non-resident must register for income tax and declare such SA source interest to the South African Revenue Service. The exemption will also not apply where the debt from which the interest arises is effectively connected to a permanent establishment of that person in SA or where the interest received is in the form of an annuity. The general interest exemptions in section 10(1)(i) may, however, still apply to non-residents that are natural persons.

 

Other than for an income tax effect, non-residents earning SA source interest can also be subject to the withholding tax on interest (“WTI”) at a rate of 15%, unless certain exemptions apply. This withholding rate can be reduced by an applicable double taxation agreement between SA and the foreign country where the person (who is a non-resident for SA tax purposes) is tax resident. Two exemptions from WTI may apply to non-residents receiving interest on an SA bank account. Firstly, there is a general exemption from interest received from SA banks. Secondly, no WTI is payable where the non-resident exceeds the 183-day threshold as set out above.

 

In summary, non-residents are not subject to WTI on interest received on an SA bank account. Also, no liability for income tax will arise on condition that none of the exclusions in section 10 mentioned above applies. To the extent that any of these exclusions apply though, the non-resident will have to register for income tax in SA and submit an income tax return. An applicable double taxation agreement should also be considered as it may contain specific provisions relating to the taxation of interest and providing relief to the extent that none is afforded by the domestic legislation discussed in this article, although this will not affect the obligation to submit an income tax return to the South African Revenue Service.

 

This article is a general information sheet and should not be used or relied on as legal or other 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)

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