VAT Quick Reference Guide for Non-executive Directors issued by SARS (Issue 2)

Binding General Ruling (“BGR”) 41 confirms that non-executive directors (“NEDs”) are not common law employees and that no control or supervision is exercised by the company concerned, over the manner in which an NED performs his or her duties or the NED’s hours of work. Based on the above, the fees earned for services rendered as an NED (hereinafter referred to as director’s fees) do not constitute “remuneration” as contemplated in paragraph 1 of the Fourth Schedule to the Income Tax Act and should therefore not be subject to the mandatory deduction of employees’ tax by the company concerned.

BGR 40 confirms that for VAT purposes an NED is treated as an independent contractor as contemplated in proviso (iii)(bb) to the definition of “enterprise” in section 1(1) in respect of those NED activities. An NED who carries on an “enterprise” in the Republic is therefore required to register if the compulsory registration threshold of R1 million in total value of taxable supplies is exceeded, or will exceed that amount in terms of a contractual obligation in writing in any consecutive period of 12 months.

Both BGR 40 and BGR 41 were issued on 10 February 2017. BGR 41 clarified that NEDs are carrying on an “enterprise” in respect of services rendered as an NED. BGR 41 (Issue 2) was subsequently issued on 4 May 2017 to clarify certain aspects relating to an NED’s liability date for VAT registration. BGR 40 and BGR 41 both apply with effect from 1 June 2017.

The information in the guide issued by SARS applies to an NED, being a sole proprietor. The guide is intended to assist NEDs by highlighting specific aspects particular to NEDs, and the VAT implications of those aspects. This guide must be read in conjunction with BGR 41 (Issue 2), BGR 40 as well as the VAT 404 – Guide for Vendors.

The previous edition of the guide has been withdrawn with effect from 28 July 2021.

Issue 2 of the guide referred to above can be accessed here.

6/08/2021