Namibian considerations for Non-Executive Directors and VAT registration
On 10 February 2017, The South African Revenue Services (“SARS”) issued Binding General Ruling (“BGR”) (Income Tax) 40, which clarifies that Non-Executive Directors (“NED”) are not considered to be common law employees and that no control or supervision is exercised over the manner in which such NED performs his or her duties, or the NED’s hours of work. Consequently, director’s fees received by NEDs do not constitute remuneration as defined and is therefore not subject to employees’ tax. This ruling does not apply in respect of non-resident NEDs.
SARS issued a further ruling, BGR (VAT) 41, which provides that NEDs are considered to be independent contractors as per the definition of “enterprise” within the South African VAT Legislation on the basis that they supply services to the company for which the consideration is charged. Consequently, all NEDs earning fees in excess of R1 million for any 12 month period are liable for VAT registration. This rule applies whether the NED is an ordinary resident of the Republic or not.
The above may impact Namibians serving as NED’s on South African companies.
We now consider the Namibian implications for NED’s serving on Namibian companies below, taking into account our local tax laws.
Excluded from the definition of remuneration in the Income Tax Act is any amount paid or payable in respect of services rendered or to be rendered by any person in the course of any trade carried on by him independently of the person by whom such amount is paid or payable and of the person to whom such services have been or are to be rendered.
The Income Tax Act further provides guidance that a person shall be deemed not to be carrying on a trade independently if he or she is subject to the control or supervision of any other person as to the manner in which his or her duties are performed or to be performed or as to his or her hours of work or if the amounts paid or payable for his or her services consist of or include earnings of any description which are payable at regular daily, weekly, monthly or other intervals.
In terms of the Income Tax Act, one of the aforementioned tests has to be satisfied for a recipient to be deemed to not be carrying on a trade independently, thus meeting the definition of remuneration for employees’ tax purposes. On the basis that NEDs are paid for every board or committee meeting the second proviso of not carrying on a trade independently is therefore met and these amounts should be subject to employee’s tax.
The Namibian VAT Act provides that any person who carries on a taxable activity becomes liable to be registered where during a period of 12 months that person made supplies the total value of which exceeded N$ 500 000. A taxable activity is defined as any activity which is carried on continuously or regularly by any person in Namibia or partly in Namibia, whether or not for a pecuniary profit that involves or is intended to involve, in whole or in part, the supply of goods or services to any other person for consideration. The definition of supply excludes a supply of services by an employee to an employer by reason of employment.
The terms employee and employer are not defined within the VAT Act and we therefore rely on the definitions contained within the Income Tax Act. An “employee” is defined as any person who receives any remuneration or to whom remuneration accrues and an employer is defined as any person who pays or becomes liable to pay remuneration.
Namibian NEDs therefore only have employees tax to worry about for now.
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Memory Mbai is a Tax Manager at KPMG. She holds Honours Degrees in Accounting and in Taxation. She has more than five years tax experience and advises a wide spectrum of corporate clients, both local and international, on Namibian income tax, indirect tax and employees’ tax considerations.
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