Like many multinationals, 'Amazon and Apple [have been] legally funnel revenues out of countries through payments to subsidiaries, typically in the form of loans or royalties for intangibles such as use of the brand or technology developed in-house,' reports the Mail & Guardian
According to the article, Apple has managed to put $1 billion a week beyond the reach of the UK and US tax authorities. And now, tax authorities are turning up the heat on this 'tax-avoidance' scheme.
But what about your company? Are you complying with your foreign income tax
Does your company need to pay tax on foreign income?
If SARS considers your company a 'resident' for tax purposes, your foreign income
will be liable for tax
'Unlike individuals, corporate taxpayers such as companies, close corporations (CC) and trusts must meet one
of three criteria to be considered a resident by SARS
purposes,' explains professional accountant Steven Jones in The Practical Tax Loose Leaf Service.
Your company or CC was incorporated or established in South Africa,
Your trust was formed in South Africa,
Or it has its effective place of management in South Africa (note this isn't the same as control of the company).
If your company fulfils any of these criteria, it must pay tax
on all its foreign income
– no matter where in the world it's earned.
This list will help you know where you'll be taxed on your foreign income
There are specific rules for the different types of foreign income
that apply, says The Practical Tax Loose Leaf Service.
Controlled foreign companies:
If you have a participation interest in a controlled foreign company, any income earned therein may be taxed by SARS
If you earn dividends from ordinary share investments in foreign companies, you'll be taxed by SARS
: A foreign branch of a South African resident company isn't a separate legal entity – as such, any trading income is subject to South Africa's tax
Interest earned on any foreign deposits – such as a foreign savings account – fall into the gross income definition and are taxed by SARS
Any foreign income
you earn from a non-South African pension is subject to tax
, unless the pension relates to a past employment outside of South Africa or if it's paid under the social security system (i.e. state pension) of another country.
In most cases, income you earn from foreign employment is subject to tax
in South Africa.
Now that you know what types of foreign income
activities are subject to tax
in South Africa, ensure your accountant reflects them correctly on your company's tax
return to avoid getting into trouble with SARS
If you need more information on the correct tax treatments on your foreign income get your hands on the Practical Tax Loose Leaf. In the Practical Tax Loose Leaf we've got a dedicated chapter on International tax for South African residents. In it you'll discover:
Pros and cons of the old source basis
If you're a resident you're liable for South African tax
When you cease to be ordinarily resident in South Africa...
Convert foreign income into rands
Apply the default position where no treaty exists I
Are employees' tax, SDL and UIF contributions payable on remuneration exempt under the foreign employment exemption?
Benefit from double taxation relief
Get your Practical Tax Loose Leaf here