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Where a creditor and a debtor enter into an arrangement whereby debt is cancelled or waived, such an arrangement is a concession or compromise as defined in the Income Tax Act. A concession or compromise is a debt benefit which carries income tax consequences.
The South African VAT system is destination-based. This means that VAT is levied on the consumption of goods and services within the borders of South Africa. It follows then that goods and services supplied by VAT vendors where consumption takes place outside of South Africa and where benefit is enjoyed outside South Africa, is subject to VAT at a rate of zero per cent.
The VAT Act provides that VAT be levied on imported services. Of late the focus has been on Electronic Services provided by non-residents to residents. Examples of these electronic services will be the provision of cloud computing as well as online services.
Prior to the change in tax legislation effective from 1 March 2020, South African tax residents who are employed outside of South Africa were (subject to certain criteria) exempt from South African tax on their foreign earnings. From 1 March 2019 the maximum exemption from tax has been limited to the first R1M in taxable income.
Not all distributions made by companies to their shareholders constitute dividends for purposes of the Income Tax Act No. 58 of 1962. To the extent that a distribution made by a company reduces the “contributed tax capital” (a concept defined with reference to inter alia the subscription consideration received by the company on the issue of shares) of a company, such would may give rise to a “return of capital” as opposed to a dividend.
Section 35 of the Tax Administration Act No. 28 of 2011 (“the TAA”) sets out the circumstances in which an arrangement would constitute a “reportable arrangement”. A “reportable arrangement” does not in itself give rise to a tax liability, but may give rise to the compilation of a cumbersome and onerous report for submission to SARS – the failure of which could give rise to significant penalties.
