HOW TO AVOID THE SARS VUVUZELA

FOLLOWING a brief stint in central America to attend an international conference, I was privy to a difference in cultural practices.

For example, in Santa Domingo, driving is a bit like organised chaos. If ever you’ve thought the driving and traffic in Johannesburg was bad, you don’t know how good it can be by comparison.

I also noticed the way in which people acted socially – unreserved emotions, specific greetings styles and use of language. It dawned on me that, without having been in those countries, I would never have been aware of the differences.

Travellers to the 2010 World Cup in South Africa were surprised by life here in many ways. A classic example was the crime in the country against which many foreigners thought, mistakenly, that they were safe.

A saving grace during my stay in central America was having access to a local inhabitant who could guide me away from a cultural faux pas or unsafe areas in the city, for a smooth foreign adventure.

Before I digress any further, how does this trip down memory lane benefit you as a taxpayer?

Many taxpayers are wanting to escape the South African tax net. They don’t want to pay tax to a government that appears to be mismanaging their tax funds. Tax morality is on a downward spiral.

However, the taxpayers undertaking such a task are often in the dark as to the best practice on how to go about it. Many set up companies or trusts but don’t follow the steps to make sure these companies don’t fall within the South African tax jurisdiction.

This leads to many suffering dire consequences, ending up paying tax to the SA Revenue Service (Sars) anyway. To rub salt in the wound, massive penalties (and/or interest) are likely to be levied by Sars.

The same goes for international companies wanting to set up a footprint in South Africa without placing themselves within the realm of South African tax residency.

Unfortunately, the ill-informed among these taxpayers end up with their ears ringing from the perennial vuvuzela that is Sars.

Unpacking this a bit further, one of the biggest questions asked is whether or not a branch or subsidiary is the best option for setting up a company in South Africa – a simple question with a multitude of complexities to consider when answering.

How, for example, do you avoid a permanent establishment in South Africa? Moreover, how do you ensure the South African entity is not “effectively managed” within the tax net? Can one ring-fence South African risk, and how? Is there a financial benefit for a subsidiary or a branch?

These are a select few questions to give you an idea as to what might be looked at when incorporating a foreign company into South Africa.

Naturally, the inverse can occur when taking a company to foreign shores. So, what should you do?

Do what anyone looking to travel overseas might do. Contact a travel agent, read up country reviews and check TripAdvisor. Plan with the advice of an expert.

In this case, the advice of a tax expert can provide the optimal direction when it comes to setting up a company.

Speak to one today and avoid the nasty ring of Sars’ vuvuzela.

Christopher Renwick is a senior tax attorney at Tax Consulting SA.