As indicated in a previous article published on 17 June 2016, it was uncertain whether or not a non-executive director needs to register for VAT?

SARS has now issued Binding Private Ruling 40 and Binding Private Ruling 41 that deals specifically with this question.

Previously it was uncertain whether or not a non-executive director should have been treated as an employee or an independent contractor. The issue was whether a non-executive director was subject to the employer’s control and supervision.

SARS has now confirmed that they will treat a non-executive director as an independent contractor. A non-executive director is not seen as a common law employee and it is accepted that no control or supervision is exercised over the manner in which a non-executive director performs his or her duties.

This means that director’s fees paid to a non-executive director are not included in “remuneration” and therefore not subject to PAYE. However, the non-executive director may voluntarily request that PAYE is deducted from any directors’ fees paid to him/her.

Now that it is determined that a non-executive director is not a common law employee and does not earn remuneration, what about VAT on director’s fees?

Binding Private Ruling 41 confirms that a non-executive director would be treated as an independent contractor. The ruling also confirms that a non-executive director’s activities would fall within the definition of an “enterprise” as defined in the VAT Act.

Therefore a non-executive director that carries on an enterprise in the Republic is required to register and charge VAT in respect of any director’s fees earned, if the value of the aggregate fees exceed R1 million in any consecutive 12 month period.

A non-executive director may also choose to register for VAT voluntarily if the value of the aggregate of director’s fees does not exceed R1 million.

The VAT registration process may have complexities and we urge you to contact your tax advisor for assistance if you unsure if and how to register for VAT as these binding general rulings will become effective from 1 June 2017 until withdrawn.

Engela Crocker

Senior Manager | Tax, Johannesburg

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