TAX ALERT: TERS and Draft Disaster Management Tax Relief Bill measures

Treasury has recently released the draft legislation necessary to give effect to the tax-related COVID-19 proposals, which includes the Temporary Employee/Employer Relief Scheme (“TERS”) legislation. TERS aims to provide emergency relief to employers so that they may continue to pay their employees during a temporary lay-off, or where working hours have been reduced resulting in reduced pay. The TERS benefits are available to an employer who closes its operations due to the COVID-19 crisis for a period of three months or less and as a result, are in financial distress.

Under this scheme, the employer would claim the benefits, and would then pay the employees. This is different from the traditional UIF where the employee themselves would normally claim financial assistance. The amounts paid will be a percentage of an employee’s salary, according to a legislated sliding scale from 38% (highest earners) to 60% (lowest earners). The TERS benefit is capped at a maximum monthly salary of R17 712 (may change from time to time). Therefore, employees earning R17 712 or more will receive a maximum of R6 730 (i.e. 38% of R17 712)

When applying for this TERS benefit, an employer must include proof of being registered with the UIF, a letter of authority and a signed agreement between the employer and the UIF. Companies who believe they qualify for the TERS relief are required to send an e-mail to Covid19ters@labour.gov.za. They will receive an automatic response outlining the application process. Each company will be judged on its own individual merits before the TERS relief will be extended to them.

National Treasury also recently issued the draft Disaster Management Tax Relief Bill, which provides details regarding the tax relief measures announced in March. We have briefly summarised the tax reliefs available below.

Employment Tax Incentive (“ETI”)

With the aim of minimising job losses, the ETI programme will be extended for four months, effective 1 April 2020 to 31 July 2020, by increasing the maximum ETI amount claimable to R1 500 per qualifying employee for the first year of employment and R1 000 for the second year of employment. Employers are also able to claim a further ETI amount of R500 for each of the four months for employees between the ages of 18 to 29, where the initial 24-month period has lapsed. As an added measure, the ETI will temporarily also apply to employees aged between 30 to 65 who earn a monthly remuneration of R 6 500 or less.

Deferral of employees tax payment

Tax-compliant small to medium-sized businesses (“SSMEs”), being businesses with gross revenue of R50 million or less, will be allowed to defer 20% of their PAYE liability for four months from April to July 2020 without incurring penalties and interest.

Businesses that take advantage of this proposed relief measure are required to pay the deferred amounts to SARS in six equal instalments over the six month period starting 1 August 2020 (i.e. the first repayment would be due with their PAYE returns, which are due on 7 September 2020).

Deferral of Provisional Tax Liability

In addition to the above, tax compliant SSMEs are also able to defer a portion of their provisional tax payments without incurring penalties or interest for a period of 12 months from 1 April 2020 to 31 March 2021.

The amounts payable are as follows (with the remainder being deferred):

• 15% of the estimated total tax liability in respect of the first provisional tax payment due between 1 April and 30 September 2020; and
• 65% of the estimated total tax liability due in respect of the second provisional tax payment from 1 April 2020 to 31 March 2021.

The deferred amount must be paid with the third provisional tax payment, which is due within six months after the business’ financial year-end, to avoid interest charges

For more information, or to discuss your particular concerns, please contact us.

How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.