SARS clarifies VAT and PAYE on director fees, but at what cost?

IN 2016 the matter of whether non-executive directors were common law or deemed employees for Pay As You Earn (PAYE) purposes led to some debate with the South African Revenue Service (SARS) and National Treasury.

The other debatable issue has been whether those non-executive directors should be subject to Value-added Tax (VAT) to their directors’ fees. SARS noted that it would clarify the matter with an interpretation note or ruling on the VAT and PAYE principles rather than amending the legislation to merely deal with this specific instance.

Pursuant to this, on February 14 2017 SARS issued Binding General Ruling 40 (PAYE) and 41 (VAT) to deal with the relevant tax consequences. These rulings clarify that resident non-executive directors are not common law or deemed employees and no PAYE will apply to them.