3 August 2009 by

SARS - your number one fan

South Africa is proving to be an attractive destination to host international sporting events and film movies. Recently, the players in the Indian Premier League and actors Matt Damon and Morgan Freeman involved in the filming of the 1995 world cup movie have passed through town. The South African Revenue Service ("SARS") is probably as interested as the fans to see who arrives next at the airport.

The practice internationally is that foreign entertainers and sportspersons are liable for income tax in the specific country in which they perform. In 2005 SARS introduced sections 47A to H to the Income Tax Act, which imposes a final tax at a rate of 15% on the amount received by or accrued to a non-resident entertainer or sportsperson ("the Taxpayer") for activities performed in the South Africa.

Where the Taxpayer is paid by a non-resident he/she is required to pay the 15% tax to the Commissioner within 30 days of the receipt or accrual of the amount. However, where the Taxpayer is paid by a resident, the resident is required to withhold the 15% tax from the amount paid to the Taxpayer and pay it over to the Commissioner before the end of the month following the month during which that amount was withheld. These provisions are particularly onerous, as a resident who fails to withhold and pay over the tax to the Commissioner may be held personally liable.

Unfortunately for the Taxpayer, generally the double taxation agreements ("DTA's") do not provide any relief. For instance, in the South Africa/India DTA, Article 17 provides that income derived by a resident of a Contracting State (India) as an entertainer or sportsperson from his or her performance or activities in the other Contracting State (South Africa), may be taxed in that other State (South Africa). Accordingly, and in line with international practice, the country in which the activities are performed will have taxing rights.

There are further compliance requirements for a resident who is primarily responsible for founding, organising, or facilitating a specified activity and who will be rewarded directly or indirectly for undertaking these functions. These persons must notify the Commissioner of the specific activity within 14 days after the conclusion of the agreement to provide the services as well as other relevant details. The purpose of this requirement is to ensure that SARS is made aware of the performance and will be able to follow up in cases where the entertainer or sportsperson who left the country after a short stay does not settle the tax within the stipulated period.

You may ask, what about the FIFA 2010 World Cup? Special tax measures relating to the 2009 FIFA Confederations Cup and the 2010 FIFA World Cup have been introduced to provide certain entities relief from taxes, duties and levies imposed by SARS. However, members of the team (the approximately 22 players) in the Participating National Association (i.e. the 32 qualifying teams) are specifically excluded from the relief afforded to certain persons in the legislation and will be subject to a withholding tax at a rate of 15%.

You might think that you are Cristiano Rolando's or Lionel Messi's number one fan but we think SARS is.

Andrew Lewis

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