Non-execs must register for VAT

Amanda Visser

Time is running out for non-executive company directors to register for and charge Value Added Tax (VAT) for any fees they earn after June this year.

The South African Revenue Service (Sars) issued a binding general VAT ruling early this month, which clarifies the activities considered to fall within the definition of “enterprise” requiring VAT registration.

In 2007 some changes in the Income Tax Act caused uncertainty about whether non-executive directors are employees (receiving remuneration) or independent contractors (providing services).

It has now been decided that these directors are “independent contractors” and any fees paid to them are not regarded as remuneration.

Ferdie Schneider, head of tax at BDO, says as a result, director fees paid or payable to a director for services rendered in that capacity are not regarded as remuneration and the director is treated as an independent contractor.

The effect of this interpretation is that non-executive directors will have to register for VAT from June 1 if their total taxable income exceeds R1 million in any 12 consecutive months.

Non-executive directors who were registered for VAT before June 1 for other activities, but did not charge VAT on non-executive director fees, must charge VAT with effect June 1 2017.