Non-Executive Directors (VAT and PAYE)
Binding General Ruling (hereafter “BGR”) 40 was issued on 10 February 2017 with the purpose to confirm that as non-executive directors (hereto “NEDs”) are not common law employees and the company concerned does not control/supervise the manner and behaviour in which the NED conducts their duties/hours of work, the fees earned for services rendered as an NED do not constitute “remuneration” as envisaged in paragraph 1 of the Fourth Schedule to the Income Tax Act. Fees accordingly earned are not subject to the mandatory deduction of employees’ tax (PAYE) by the company concerned.
BGR 41, also issued on 10 February 2017, confirmed that services carried out by a NED fall into the definition of an “enterprise”. For VAT purposes, an NED is regarded as an independent contractor as contemplated in proviso (iii)(bb) to the definition of an “enterprise” in section 1 of the VAT Act. BGR 41 (Issue 2) was subsequently issued on 4 May 2017 clarifying that if the NED carries on an enterprise in SA they are required to register and charge VAT in respect of any director’s fees earned for services rendered as an NED, if the value of such fees exceeds the compulsory VAT registration threshold of R1 million in any consecutive 12-month period. NEDs may also register for VAT voluntarily if the value of taxable supplies were more than R50,000. Respective NEDs were required to have registered for VAT by no later than 1 June 2017.
SARS subsequently issued a publication titled “FAQs on BGRs 40 and 41: Non-Executive Directors (VAT and PAYE)” as well as a “VAT Quick Reference Guide for Non-Executive Directors”. SARS subsequently issued the second and third edition, respectively, of both publications on 17 October 2022. Both publications can be found on the SARS website
10 February 2023
Contacts