Foreign entities deriving income from South Africa must register as taxpayers

International Taxation
International Taxation

Author: Douglas Gaul, Tax Manager Grant Thornton Johannesburg

It has long been a requirement that a non-resident company, trust or other juristic person must file a tax return if it carried on a trade through a permanent establishment in South Africa, or derived any capital gain from a South African source.

Every year, the requirements for submitting income tax returns are published by way of a notice in the Government Gazette and it is interesting to note that the requirements for submitting returns for the 2015 year now include non-resident companies, trusts or other juristic persons that derive income from a source in South Africa.

This means for example, that if a foreign entity sends an employee to South Africa to render services here, and the entity invoices a South African resident for these services, the foreign entity may be required to submit a tax return to SARS in respect of its South African-sourced income. This, despite the fact a double taxation agreement may otherwise have meant that the income would be exempt, simply because it does not have a permanent establishment here.

It is uncertain whether any consideration was given to the practical implications related to this requirement. For example, the foreign entity will have to register as a taxpayer before it is able to file a tax return, which in itself is no easy feat and requires amongst other stringent prerequisites, including the appointment of a public officer with a South African address.

In view of the complications, it remains to be seen to what extent non-resident entities will comply, assuming they are even aware of the need to do so. For assistance and advice, please contact Grant Thornton.