In terms of South African income tax legislation, South African tax residents and non-South African tax residents are taxed differently, as is the case in almost every country around the world. A South African tax resident is taxed in South Africa, by SARS, on its worldwide income, irrespective of where the income originates from or the source of the income.

A non-South African tax resident on the other hand, is only taxed in South Africa on the income that they earn from a South African source. For example, Barry is a French tax resident. He invested money into a South African bank account and earns interest on his investment in the South African bank account. Although Barry does not live in South Africa and he is not a South African tax resident, he will be required to declare this income on an income tax return to SARS and pay tax thereon. He will however be allowed the annual interest exemption, which is R23 800 for an individual below 65 years old and R34 500 for individuals above 65 years old. Whatever income Barry earns from a non-South African source though, will not be taxed in South Africa and Barry need not declare it in South Africa.

The same rule applies to immovable property, where a property is situated within South Africa, it has a South African source and thus if that immovable property is disposed of, there will be tax payable to SARS, whether the seller is a South African resident or a non-South African resident. If the seller of the immovable property is a non-South African resident, there will be an amount of tax withheld form the selling price, known as a withholding tax, which is considered to be a pre-payment of the capital gains tax that will eventually be due and payable by the non-resident taxpayer.

It is important to note that taxpayers operating in two or more jurisdictions are governed by double tax agreements between countries. A double tax agreement is where the two countries have agreed on who will have the taxing rights over a certain source of income earned by a taxpayer. It is therefore always important to consider first a double tax agreement, if there is a taxpayer who falls within more than one tax jurisdiction. If there is in fact no double tax agreement, both jurisdictions tax legislation may apply to the income earned by the taxpayer.

Take note that tax residency is a complicated matter and is determined from your ordinary residence and your physical presence in South Africa. It is therefore advisable to not make any assumptions when considering your tax residency status but instead consult with an experienced tax advisor.

Willem Oberholzer is executive director and Jade Els MCom Tax is a tax adviser at Probity Advisory.


Five rules for effective cash flow management

Fin24 blogger Anderson Lele writes:

MAKING sure that your company is a viable business means that you have to pay attention to and manage your cash flow effectively. Business experts agree that one of the most common reasons for the failure of small businesses is that they run out of cash.

As a successful entrepreneur, you know that careful consideration must be given regularly to your business operations; this also should include following some basic rules for examining and managing your cash flow.

1. Have a cash flow budget 

Even though you have a spreadsheet of your revenue and expenses, you need a sheet that reflects the timing of how and when cash flows into your company. It’s also critical to have projections of what you think your cash flow will be in the coming quarters.

You can base some of this information on your contracts and payment terms that you have with your clients. This budget will let you know if the cash flow that you have is adequate to cover the amount of expenditure that you have ahead.

Being alerted to shortfalls ahead of time can help you elicit help from others.

2. Keep your costs under strict control

Make cuts whenever and wherever you can to minimise your overheads. You’ll find that leasing furniture saves money, taking advantage of inexpensive marketing strategies helps, and doing some of the tasks that you might hire others to do can help you get through a difficult time.

It will be easier to add to the cost of overheads as your company grows rather than cut services and operations because your cash flow won’t cover the obligations that you have.

3. Don’t let your cash be slowed up in accounts

It’s imperative that your clients pay on time every time; by offering incentives for early payment you can improve the status of your finances.

You must send out your invoices after work is finished or the product has been supplied, track the records, and make sure that late payments are dealt with quickly and efficiently.

If you have a process in place, you’ll let your clients know that you expect payment when services or products are rendered.

4. Establish a payment reputation

In order to make sure that your company has a good reputation, you must meet your financial obligations on time.  Pay your bills when they are due and after you have established yourself as a professional company, ask for extended time if you need it.

5. Have a plan in place for shortfalls

If you have cash reserves on hand, your company will never experience a shortfall that can dramatically impact your bottom line.

If you can’t manage to have some savings ready for an emergency, by doing an examination of your cash flow projections you can arrange recruitment finance which will alleviate your cash flow problems until you have enough funds to cover your costs.

If you simply follow the rules listed above, you’ll find that your company will be a vibrant, thriving business with funds that cover expenditure effectively.

– Fin24

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A misconception exists that bookkeeping and accounting are one and the same. While they both work to assist you with your finances, there are some important distinctions between the tasks of a bookkeeper and an accountant. From the outset, it is important to understand that both bookkeepers and accountants forms an integral parts of your business. While their tasks can sometimes overlap, there are definitely certain aspects of your business that you would specifically entrust to an accountant, and others to your bookkeeper.

In layman’s terms, a bookkeeper will likely be the person that assists you with the ongoing financial day-to-day transactions that keep your business running smoothly. Your accountant, on the other hand, will be the person who analyses the data compiled by your bookkeeper, reports on it. Your accountant should have a strong understanding of your taxation requirements.

In order to understand the concept in the benefits that both bookkeepers and accountants can offer to you, from a financial perspective, it can help you making a clear decision to choose between them.

Believe it or not bookkeepers are instrumental in the ongoing day-to-day financial operations of your business.

Some of the key functions that are regularly undertaken by your bookkeeper includes:

  • Processing invoices, receipts, payments
  • Processing and maintaining your payroll system
  • Preparing initial financial statements
  • Reconciling accounts and preparing reconciliation reports
  • Managing your accounts receivable and accounts payable
  • Calculating GST (VAT returns)
  • Updating, establishing and reviewing accounting systems

There are a wide variety of other tasks that a bookkeeper can undertake, and much like the tasks outlined above, they are generally related to the ongoing maintenance of your financial records.

It is important to be aware that there is likely to be a substantial difference in fees charged by bookkeepers and accountants. In order to best utilize your budget, extensive consideration into which tasks are to be delegated to a bookkeeper or an accountant is strongly advised.

The role of an accountant in your business is often more advisory and analytical in nature. An accountant will be in a position, through analysis of past performance, offer financial projections and predict and advice on future financial performance of your business.

Further services, but not limited, offered by your accountant can also include:

  • Taxation
  • Company registrations
  • Auditing
  • Corporate reporting and compliance
  • Financial management advice

While the list of an accountant’s services is not only limited to analytical and advisory in nature but can be extended towards many other aspects of your financial needs, it all depends on the level of knowledge and size of the business you’re dealing with.

It can therefore be argued that there are substantial differences between the services offered by bookkeepers and accountants, however, both are crucial to the growth and success of your business. Instead of boxing them in a ‘bookkeepers vs accountants’, it is important to note that both must work together to accomplish success.