- Kemp Munnik, Director - BDO Spencer Steward
Skills: The ultimate trading commodity in today’s global economy. As companies across the world redefine operations, systems and processes in order to bridge skills gaps, they are not only looking across borders and continents to source scarce skills.
They are engaging in honest conversations with quality staff in a bid to retain them, even if this means facilitating secondment or relocation. The result? More companies are turning to professionals when it comes to expatriate management – ensuring that critical tax policy selection and support is guaranteed throughout the experience and, consequently, building a relationship that will eventually create a viable source of inbound expatriates…
Relocation, repatriation, secondments and transfers: four words currently revolutionising business in – and the demographics of – South Africa. With companies around the world poaching skilled staff from all industries, and challenges within our borders encouraging the migration of skills, South African businesses have to come to the party and `take the gloves off’ when it comes to attracting and retaining staff.
For many this has meant having open, honest discussions with key employees regarding their future role in the business, and accommodating – like never before – the dreams and desires of staff to see the world, experience other cultures and live in a safer, familyoriented environment.
It has also meant taking a long-term `big picture’ approach to employment and globalisation, creating partner networks and affiliations that allow skilled employees the freedom to move within set parameters and eventually entice them home as inbound expatriates.
Current trends
So companies are under increasing pressure to accommodate travel and other tendencies.
This is something they are doing while remaining cognisant of cost and bottom-line considerations, preferring to facilitate shorter assignments.
Recent research by ORC Worldwide has shown a 20% increase in short-term assignments, with 85% of companies developing a separate policy governing these. With this steady increase in short-term assignments, we’re seeing a corresponding rise in compliance risks as companies commit to secondments or transfers without a full understanding of the tax and legislative implications.
The reality facing companies dealing with expatriates then is that business imperatives alone no longer drive the expat management process. It has become a focus area all on its own, and a complex one at that.
What is involved?
Today’s expatriate management involves everything from initial assignment planning right
through to repatriation and post-assignment services. It therefore includes all aspects of the expatriation process, from assisting with immigration requirements to assignee support and management despite the individual no longer living in one’s country. As such, it makes the employer as organiser and facilitator the critical element in the equation – going a long way in restoring the original employer/employee status quo.
Discussion between business units throughout the expatriation process is critical. HR needs to be kept informed and included in all conversations regarding employees’ movements so as to facilitate and guide the process according to the company’s expatriate policy. Not only is this imperative from a compliance point of view, but it will go a long way in fostering mutual trust and effectively lay a solid foundation to bring all outbound expatriates back home in the future.
Expatriate policy
Having an established expatriate policy will ensure that the process of expatriation is handled efficiently and effectively by one’s company – and that one knows how to deal with expat employees. This policy should cover all necessary human resources issues, including all repatriation processes, as well as include a tax policy.
It needs to set down clear guidelines that could otherwise be misconstrued by employees. It must determine how the company will address everything from payment of school fees to contribution to pension funds. If your company deals with inbound and outbound expatriates, it may be a good idea to develop separate policies for different countries.
A cost of living allowance is another crucial component of expatriate policy. From a company perspective, this needs to be benchmarked for salaries. The company’s expatriate policy must also govern the issue of secondment or transfer. These have different implications for employee and employer. This has become more important with the increase we’re seeing in short-term assignments.
Too often expatriate policy is neglected, with the focus of expatriate management honed on tax implications. Tax policy must form part of this far more comprehensive and far-reaching policy document, as HR issues are a critical part of what can potentially become a very complicated process. This will ensure that there are no grey areas that need to be addressed when employees return home.
By linking the employment contract to this policy document, companies will additionally ensure that expectations are managed appropriately and consistently from the outset.
Best tax policy
When determining the most beneficial tax policy to use while employees are overseas, companies should help employees meet their remuneration objectives. At the same time, they should ensure that the tax policy adopted is in line with the company’s overall business strategy.
A number of policies need to be carefully considered in this regard. Using a laissez-faire policy for example will leave expatriates responsible for their own taxes. A tax protection policy on the other hand will leave the employer responsible for any tax liability higher than that of the home country.
Tax equalisation policy
According to ORC Worldwide, 80% of companies are choosing a tax equalisation policy, where employees receive the same net salary and pay the same amount of tax as if they had continued working in their home country. In this instance, expats pay `hypothetical tax’, with the employer responsible for all tax liabilities in home and host countries – `grossed up tax’.
Tax equalisation ensures that the company keeps the tax benefit of having its employees in lower tax countries, so helping to offset the tax costs of those employees in countries with higher tax rates. But because expats don’t gain the benefit of lower host tax rates themselves, it may discourage the mobility of high-end earners. The company will also have to ensure that expats aren’t already personally liable for tax due to their citizenship in certain countries.
While tax equalisation policies often initially look very attractive, it is important to note they can be exceptionally expensive to implement because of their sophistication. The cost of this type of policy is often additionally increased by virtue of competitor firms providing similar packages with higher net salaries. Allowances often become a standard feature of this type of policy, with employers trying to compensate for exchange rate fluctuations, the cost of renting accommodation and pension provisions among others. This increases the cost to the employer
significantly.
See the opportunity
When it comes to providing expatriate employees with advice and support, companies need to view expatriate management as an opportunity to make themselves an invaluable part of their employees’ lives – and to act as enablers.
In this way, businesses will not only ensure they work with employees to make their professional dreams realities, but that this happens in the context of the company’s network.
This is exactly the platform needed to build employee loyalty for the long-term and to bring outbound expatriates back home.
Thursday, January 29, 2009
Thursday, January 22, 2009
How small business taxes will work
- SARS - Moneyweb Tax
Sars reveals all, including how the exemption from STC will work and special measures available to assist businesses that de-register for VAT and register for the simplified tax system.
The Revenue Laws Amendment Act, 2008, which was promulgated on January 8 2009, introduces a simplified tax system for many businesses with an annual turnover of up to R1m. This system will substantially reduce tax compliance costs for qualifying businesses.
The simplified tax system essentially consists of a single turnover tax as a substitute for income tax, capital gains tax, secondary tax on companies (STC) and value-added tax (VAT). It will come into operation on March 1 2009. Qualifying businesses will have the option of choosing between the simplified tax system and the existing tax system.
The turnover tax is a stand alone tax and does not form part of the usual calculations for determining income tax. Unlike the income tax system, which makes use of comprehensive inclusion rules and a reduction process that requires proof of expenses to be maintained, the turnover tax is basically calculated by applying a low set of tax rates to the turnover of the business.
The turnover tax will be payable annually on assessment with two six-monthly interim payments.
Capital gains will be taxed by simply including 50% of the amounts received from the disposal of business assets in the turnover to be taxed. Close corporations and other corporate entities that choose the simplified tax system will be exempt from STC to the extent that their dividend distributions do not exceed R200 000 a year.
Special measures are available to assist businesses that de-register for VAT and register for the simplified tax system. They will be able to make use of a deduction of up to R100 000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to R12,281 in the VAT charge. They will also be able to re-pay any remaining VAT charge due to de-registration over a period of six months.
Sars has prepared a Tax Guide for Micro Businesses to assist them with understanding the simplified tax system better and to empower them to make an informed decision on registering for it.
The Guide is now released in draft form for public comment. Kindly send your comments by email, with the subject line ""Tax Guide for Micro Businesses"", to policycomments@sars.gov.za or by facsimile to 012-422-5195 by 19 January 2009. Although individual responses will not be possible, all comments will be acknowledged and taken into account in finalising the Guide.
Sars reveals all, including how the exemption from STC will work and special measures available to assist businesses that de-register for VAT and register for the simplified tax system.
The Revenue Laws Amendment Act, 2008, which was promulgated on January 8 2009, introduces a simplified tax system for many businesses with an annual turnover of up to R1m. This system will substantially reduce tax compliance costs for qualifying businesses.
The simplified tax system essentially consists of a single turnover tax as a substitute for income tax, capital gains tax, secondary tax on companies (STC) and value-added tax (VAT). It will come into operation on March 1 2009. Qualifying businesses will have the option of choosing between the simplified tax system and the existing tax system.
The turnover tax is a stand alone tax and does not form part of the usual calculations for determining income tax. Unlike the income tax system, which makes use of comprehensive inclusion rules and a reduction process that requires proof of expenses to be maintained, the turnover tax is basically calculated by applying a low set of tax rates to the turnover of the business.
The turnover tax will be payable annually on assessment with two six-monthly interim payments.
Capital gains will be taxed by simply including 50% of the amounts received from the disposal of business assets in the turnover to be taxed. Close corporations and other corporate entities that choose the simplified tax system will be exempt from STC to the extent that their dividend distributions do not exceed R200 000 a year.
Special measures are available to assist businesses that de-register for VAT and register for the simplified tax system. They will be able to make use of a deduction of up to R100 000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to R12,281 in the VAT charge. They will also be able to re-pay any remaining VAT charge due to de-registration over a period of six months.
Sars has prepared a Tax Guide for Micro Businesses to assist them with understanding the simplified tax system better and to empower them to make an informed decision on registering for it.
The Guide is now released in draft form for public comment. Kindly send your comments by email, with the subject line ""Tax Guide for Micro Businesses"", to policycomments@sars.gov.za or by facsimile to 012-422-5195 by 19 January 2009. Although individual responses will not be possible, all comments will be acknowledged and taken into account in finalising the Guide.
Monday, January 19, 2009
Dotting the i’s and crossing the t’s on 2009 budget
- Matthew Lester - Net Assets
In October last year, finance minister Trevor Manuel told us all that we were still in reasonable shape to weather the global credit crunch storm.
Tax collections for 2008/09 were about on target, with an anticipated overrun in individuals’ tax collections making up for what would be lost as the economy cooled off.
Government expenditure would overshoot a bit, as it does every year.
Manuel predicted that the net result for 2008/09 would be a small national deficit. But South Africa was strong enough to take it, he said. Worse things have happened at sea!
But that was based on six months of tax collections to September 30 and markets as at October 21 2008. Now we have to throw in a few other curve balls:
1. Joe Consumer did cut back on his Christmas spend. But by how much? And what will the effect be on VAT and customs and excise collections? Christmas 2007 was imported luxuries and excess all the way, whereas Christmas 2008 was a bring and braai.
2. Commodity prices plunged post- September 2008, except for dear old gold. What will this do to the big corporate tax payments due at the end of March 2009?
3. This year, the national budget has been brought forward to February 11. That’s a full six weeks before the fiscal financial year end. So, regardless of what Manuel tells us on budget day, we may all be April fools this year.
But what about 2009/10? For the last few years, state expenditure has been increasing by about 11% a year.
So, with higher inflation, let’s say that state expenditure must increase by 15% to keep momentum going. That increases the target from R642-billion for 2008/09 to a staggering R738-billion for 2009/10. And Manuel must find another R96-billion from the taxpayer.
Even after a moderate tax cut to individuals to keep fiscal drag at bay, individual tax collections will increase by about R25-billion — if employment levels stay constant, that is.
And I reckon he will struggle to get another R15-billion from companies and R20-billion from VAT, unless there are tax increases. And I am not predicting that in an election year.
Manuel will probably add 25c a litre to fuel as prices are so low — that’s another R5-billion. And he will definitely hit smokers and drinkers with a record increase in sin tax, collecting another R5-billion. So, at best, he can find about R70-billion of the R96-billion.
In real terms, a national deficit of R35-billion to R50-billion is sustainable. But if the political game plan is accelerated delivery by increasing state expenditure, then I just don’t know.
Lester is professor of taxation studies at Rhodes University, Grahamstown
In October last year, finance minister Trevor Manuel told us all that we were still in reasonable shape to weather the global credit crunch storm.
Tax collections for 2008/09 were about on target, with an anticipated overrun in individuals’ tax collections making up for what would be lost as the economy cooled off.
Government expenditure would overshoot a bit, as it does every year.
Manuel predicted that the net result for 2008/09 would be a small national deficit. But South Africa was strong enough to take it, he said. Worse things have happened at sea!
But that was based on six months of tax collections to September 30 and markets as at October 21 2008. Now we have to throw in a few other curve balls:
1. Joe Consumer did cut back on his Christmas spend. But by how much? And what will the effect be on VAT and customs and excise collections? Christmas 2007 was imported luxuries and excess all the way, whereas Christmas 2008 was a bring and braai.
2. Commodity prices plunged post- September 2008, except for dear old gold. What will this do to the big corporate tax payments due at the end of March 2009?
3. This year, the national budget has been brought forward to February 11. That’s a full six weeks before the fiscal financial year end. So, regardless of what Manuel tells us on budget day, we may all be April fools this year.
But what about 2009/10? For the last few years, state expenditure has been increasing by about 11% a year.
So, with higher inflation, let’s say that state expenditure must increase by 15% to keep momentum going. That increases the target from R642-billion for 2008/09 to a staggering R738-billion for 2009/10. And Manuel must find another R96-billion from the taxpayer.
Even after a moderate tax cut to individuals to keep fiscal drag at bay, individual tax collections will increase by about R25-billion — if employment levels stay constant, that is.
And I reckon he will struggle to get another R15-billion from companies and R20-billion from VAT, unless there are tax increases. And I am not predicting that in an election year.
Manuel will probably add 25c a litre to fuel as prices are so low — that’s another R5-billion. And he will definitely hit smokers and drinkers with a record increase in sin tax, collecting another R5-billion. So, at best, he can find about R70-billion of the R96-billion.
In real terms, a national deficit of R35-billion to R50-billion is sustainable. But if the political game plan is accelerated delivery by increasing state expenditure, then I just don’t know.
Lester is professor of taxation studies at Rhodes University, Grahamstown
Subscribe to:
Posts (Atom)
