International tax: It’s about the company you keep

When in Rome…
Following a brief stint in central America to attend an international conference, I was privy to a difference in cultural practice as well as social customs that were to be observed.

For example, in Santa Domingo, driving is a bit like organised chaos. If ever you’ve thought the driving and traffic in Johannesburg was bad, you don’t know how good it can be by comparison.

Other observations I noticed was the way in which people acted socially. Unreserved emotions, specific greetings styles and use of language. While enlightening, it dawned on me that, without having been in those countries, I would never have been aware of the differences.

Home is what you make it
Travellers to the 2010 World Cup in South Africa were surprised by life here in many ways. A classic example was the crime in the country against which many foreigners thought, mistakenly, that they were safe. The other example was the Vuvuzela. No need to go into detail on that one.

I think one saving grace during my stay on central America was having access to a local inhabitant who could guide me away from a cultural fuax pas or unsafe areas in the city. The result? A smooth foreign adventure.

Before I digress any further, how does this trip down memory lane benefit you as a taxpayer?

Taxpayers in the international market
Many South African taxpayers are wanting to escape the South African tax net. Fact is, they don’t want to pay tax to a government that appears to be mismanaging their tax funds. Tax morality is on a downward spiral.

However, the taxpayers undertaking such a task, quite often, are in the dark as to the best practice on how to do so. Many set up companies or trusts but don’t follow the steps to make sure that these companies don’t fall within the South African tax jurisdiction.

This leads to many suffering dire consequences, whom end up paying tax to SARS anyway. To rub salt in the wound of these taxpayers, massive penalties and/or interest will most likely be levied by SARS.

To branch or not to branch?
The same goes for international companies wanting to set up a footprint in South Africa without placing themselves within the realm of South African tax residency. Unfortunately, the ill informed of these taxpayers end up with their ears ringing from the perennial Vuvuzela that is SARS.

Unpacking this a bit further, one of the biggest questions asked is whether or not a branch or subsidiary is the best option for setting up a company in South Africa. A simple question with a multitude of complexities to consider when answering.

How, for example, do you avoid a permanent establishment in South Africa? Moreover, how do you ensure the South African entity is not “effectively managed” within the tax net? Can one ringfence South African risk and how? Is there a financial benefit for a subsidiary or a branch?

These are the droids you are looking for
These are a select few questions to give you an idea as to what might be looked at when incorporating a foreign company into South Africa. Naturally, the inverse can occur when taking a company to foreign shores. So, what should you do?

Do what anyone looking to travel overseas might do. Contact a travel agent, read up country reviews and check TripAdvisor. Plan with the advice of an expert.

In this case, the advice of a tax expert can provide the optimal direction when it comes to setting up a company. Speak to one today and avoid the nasty ring of SARS’ Vuvuzela