On 25 June 2014 SARS issued its annual notice (‘Notice’) to specify which persons must file income tax returns for the 2014 year of assessment. The Notice was issued in terms of section 66 of the Income Tax Act (the ‘Act’), read together with section 25 of the Tax Administration Act. The 2014 year of assessment generally runs from 1 March 2013 to 28 February 2014.
If the current Notice is compared with the same notice for the 2013 year of assessment it is clear that SARS has altered the scope for non-resident persons who must (and must not) file an income tax return in South Africa.
In terms of section 67 of the Act these non-residents will be required to register as taxpayers to be able to file the income tax returns. The obligation of a non-resident entity to file an income tax return in South Africa applies irrespective of whether or not a double tax treaty would provide protection from some or all of the South African tax otherwise applicable.
Ordinarily every company, trust or other juristic person, which was not a resident for South African tax purposes, had to file an income tax return in South Africa if it:
- carried on a trade through a permanent establishment in South Africa; and
- derived any capital gain from a source in South Africa.
This had now been extended to non-resident juristic persons who derive service income from a source in South Africa.
South Africa intends to implement a withholding tax on service fees from 1 January 2016 and the filing of such income tax returns may assist SARS in implementing and monitoring the new regime.
The Notice does not define what is meant by the term ‘service income’. For purposes of the withholding tax on service fees, the term ‘service fees’ is defined as any amount received or accrued in respect of technical, managerial or consulting services. Services incidental to the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information are excluded, as is the rendering of or the undertaking to render any assistance or service in connection with the application or utilisation of such knowledge or information. It is not clear whether the above definition of ‘service fees’ is what SARS has in mind by ‘service income’.
The Act also does not define when services will be regarded as being derived from a source in South Africa, despite providing specific source rules for other income types. Therefore, the common law rule would apply, which is that the source of income from services rendered is generally where the services are rendered. See, for example, COT (SR) v Shein 1958 (3) SA 14 (FC), and CIR v Nell 1961 (3) SA 774 (A). So, if a foreign holding company renders managerial or other services to its South African subsidiary outside the Republic, the income from such services will not be from a South African source and the filing requirement will not arise as a result of the earning of this income.
The Notice also lists that every non-resident person whose gross income consisted of interest from a source in South Africa, to which the provisions of section 10(1)(h) of the Act did not apply, has to file an income tax return.
Currently section 10(1)(h) of the Act exempts non-residents from income tax on South African sourced interest received by or accrued to them during any year of assessment provided such non-resident did not physically spend more than 183 days in aggregate in South Africa during the 12 month period preceding the date of the receipt or accrual of the interest (where the non-resident is a natural person) or carry on business through a permanent establishment in South Africa at any time during that year of assessment.
Therefore if the interest income is not exempt from normal tax in the hands of the non-resident in terms of section 10(1)(h) above, such non-resident will need to file an income tax return for the 2014 year of assessment.
Returns must be submitted within the following periods:
- in the case of any company, within 12 months from the date on which its financial year ends; or
- in the case of all other persons (which include natural persons, trusts and other juristic persons, such as institutions, boards or bodies)-
- on or before 26 September 2014 if the return is submitted manually;
- on or before 21 November 2014 if the return is submitted by using SARS eFiling platform or electronically through the assistance of a SARS official at an office of SARS;
- on or before 30 January 2015 if the return relates to a provisional taxpayer and is submitted by using the SARS eFiling platform; or
- where accounts are accepted by the Commissioner in terms of section 66(13A) of the Act in respect of the whole or portion of a taxpayer’s income , which are drawn to a date after 28 February 2014, but on or before 30 September 2014, within 6 months from the date to which such accounts are drawn.