VAT registration for non-executive directors
On 10 February 2017, SARS issued Binding General Ruling 41 ("BGR41") with regard to the VAT implications for non-executive directors ("NED").
In BGR41, SARS stated that there is a difference between an employee and an independent contractor as follows:
• an employee is a person who commits his or her productive capacity to an employer in terms of an employment contract; and
• an independent contractor is a person who commits his or her labour to the recipient (employer) to produce a given result in terms of a contract for services.
The VAT implications in BGR41 followed the logic and conclusion in BGR40, which dealt with employees tax (PAYE) and concluded that as a NED is considered an independent contractor for employees tax purposes, it follows that for VAT purposes, a NED is also considered to be an independent contractor as contemplated in proviso (iii)(bb) to the definition of "enterprise" in section 1(1) of the VAT Act. Accordingly where the fees that the NED receives exceed the R1 million threshold, the NED must register for VAT.
There was some confusion with regard to the decision in BGR41 as it was not stipulated when a NED would be liable for VAT registration and whether the BGR would be applicable retrospectively or not.
In response to the public's concerns, on 4 May 2017, SARS issued an updated BGR41 stating that a NED that–
• was already registered as a vendor, but had not levied VAT or accounted for output tax in respect of the fees earned as a NED must start charging and accounting for VAT on such fees by no later than 1 June 2017; and
• was not registered as a VAT vendor but was carrying on an enterprise and had exceeded the R1 million compulsory VAT registration threshold must apply for registration no later the 1 June 2017.
Where the NED does not exceed the R1 million compulsory VAT registration threshold but has exceeded R50 000 in the preceding 12 months, that NED can register voluntarily as a VAT vendor.
BGR41 is valid from 1 June 2017 and will be valid until it is withdrawn by SARS.
Where a scenario is not covered by BGR41 and a person is uncertain as to whether or not a NED must register as a vendor, such person may apply for a VAT ruling requesting SARS to provide it with clarity on the matter.