TAXATION OF NON-TAXATION OF NON-SOUTH AFRICAN RESIDENT ENTERTAINERS AND SPORTSPERSONS
Taxation of non-South African resident entertainers and sportspersons
By Rabalao Moalosi / Georg Kahle
The fledgling South African entertainment industry has the potential to expand and develop into a significant contributing factor in the South African economy. With the spotlight having recently fallen on the South African film industry, with the film Tsotsi winning an Oscar, with several high-profile international artists, acts and musicians performing in South Africa and the awarding by FIFA of the 2010 Football World Cup to South Africa, the industry is set to become a prominent landmark on the South African economic horizon. The South African Revenue Service (“SARS”) has identified this potentially lucrative source of revenue and has introduced new legislation which seeks to tax the earnings of foreign artists and sportspersons.
The Revenue Laws Amendment Act of 31 of 2005 (“the Act”) came into effect on 1 February 2006, and imposes a withholding tax on non South African artists and sportspersons. This provision is not yet in operation, as its effective date has not yet been announced by the President. Historically, if foreign artists and sportspersons did not pay tax on their income earned from a South African source, SARS had practical difficulties in collecting any tax due. The revenue earners’ short stay in South Africa often made it difficult for SARS to enforce compliance with existing tax laws.
The proposed new provision will introduce two withholding tax rates:
· artists and sportspersons from other African states will be liable for a withholding tax of 5% on any amounts earned in South Africa; and
· international participants will be subject to a withholding tax of 15%. The artist or sportsperson is obliged to pay the tax to SARS within 30 days from the date on which the compensation is received or is accrued. The 30 day period can be extended, if SARS agrees to an extension.
The tax is a final (non deductible) tax. In other words the foreign entertainer or sportsperson cannot deduct expenses incurred from the remuneration.
The terms ‘entertainer’ or ‘sportsperson’ have a wide meaning, and include any person who is not a South African resident and who comes to South Africa to perform activities, such as actors, artists, musicians, or any person who takes part in any type of sport or any other activity which is usually regarded to have an entertainment character.
If an artist or sportsperson, comes to South Africa to perform one or more of the specified activities for reward, and then remains physically present in South Africa for more than 183 days in aggregate for the year of assessment, or comes to South Africa to perform specified activities as an employee of a South African resident employer, the withholding tax will not be imposed and normal income tax will be payable on the remuneration earned.
The artist or sportsperson can arrange with a South African resident who is primarily responsible for the founding, organising, or facilitating of the event in which the artist or sportsperson participates, to deduct the tax due to SARS. Where such arrangement has been made, the Act requires the organiser to pay the tax to SARS before the end of that month.
If the artist or sportsperson is ordinarily resident in a country which has concluded a double taxation agreement (“DTA”) with South Africa, then such DTA will apply. As at 3 March 2006, South Africa had concluded approximately 90 comprehensive DTA’s. The artist or sportsperson will not be subject to double tax, the effect of the DTA being that tax is paid only once, in one country, on any revenue earned in South Africa.
Where an arrangement exists in terms of which an organiser must deduct or withhold the tax payable and pay it over to SARS, and the organiser fails to do so, the organiser will be held personally liable to pay tax due by the artist or sportsperson to SARS.
SARS also obliges the organiser to advise them if he or she directly or indirectly, receives a reward for the activities to be performed by the artist or sportsperson. The organiser must notify SARS of the proposed activity or event within 14 days from the date of conclusion of any agreement relating to the activity or event.