SARS has been taking more and more of an interest in intellectual property taxation.
And judging by the rate they're are catching taxpayers out, it's increasingly evident that no one can afford to try and 'fly under the radar'!
That's right! The bottom line is that you need to structure your royalty payments in a way that doesn't land you in trouble with SARS.
And by following these 4 royalty-payment rules, you can do just that...
How to legally minimise your taxes
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Royalty payments made to a foreign licensor may not be deducted where intellectual property was, at any time, created or owned by a South African and given to a foreign entity without exchange-control approval.
If an international licence provides for continuing modifications, such as research and development, or any technical services, you must divide and allocate the 'royalty' among payments for:
· The use of the intellectual property;
· The technical services provided; and
· Continuous Research and Development activities.
Very few 'royalties', which are paid in terms of software licences, are actually royalties at all.
So such amounts won't be subject to withholding tax (Organisation for Economic Co-operation and Development (OECD)
Always remember that:
· Vat is levied on all domestic licences;
· Vat is only payable on 'incoming licenses' if the license is not a Vat vendor or won't be using the licensed rights in their 'Vatable' enterprise; and
· Vat isn't payable for 'outgoing licenses'.
*Those were 4 rules to remember the next time you deal with royalty payments.
Make sure you abide by them correctly, otherwise SARS will hit you hard with penalties!
To learn more, page over to Chapter R 09: Royalty Payments
in your Practical Tax Loose Leaf Service
handbook, or click here
if you don't already have a copy of this invaluable resource.