A Fin24 user, setting up a local office for an international company, is worried about paying more tax than necessary. He writes:
An international company has hired me to start their local office and offered to pay me a set amount.
I am worried that I might end up paying more tax than necessary.
How can I structure my cost to company to pay the least amount of tax?
Elzahne Henn, associate director at Mazars, responds:
For purposes of the response we have assumed that you are a South African resident for tax purposes.
If the employer pays you on a cost to company basis you can structure the benefits to suit your needs, but any structuring can only be done if your employer agrees to it.
It should be noted that cost to company packages is not a vehicle to earn tax-free remuneration or to increase or decrease your take-home pay.
It is a structure to help an employee to understand the full value of his or her cash salary and benefits.
Examples of benefits that can be included in a cost-to-company package are: A thirteenth cheque, retirement fund contributions, medical scheme contributions, group life cover, income protection, a travel allowance (if the employee is required to travel for business purposes) and a company vehicle.
You are entitled to structure your cost to company in a way that minimises the tax you pay, but these opportunities are very limited.
Tax deductions in respect of contributions to retirement funds remain beneficial from a tax perspective and are worthwhile for you to explore and discuss with your employer.
In the event that you are required to travel for business purposes and your private travel is limited, a travel allowance can be used to the maximum tax advantage.
This is provided that you maintain accurate records of your mileage travelled for business purposes.
However, if you travel less that 8 000km a year for business purposes a reimbursive allowance will be more beneficial from a tax perspective than a fixed travel allowance.
This is because the employer may then reimburse you a tax-free amount at a rate of R3.30 (from March 1 2014) per kilometre travelled for business purposes.
A reimbursive allowance, however, does not form part of your cost to company package.
The medical scheme contributions your employer pays on your behalf are fully taxable and you get a tax credit or rebate for contributions paid for yourself and your dependants.
The credit is based on the number of dependants for whom contributions are paid and not on who makes the contributions or the cost of the medical scheme option.
From a tax perspective it is therefore irrelevant whether the employer pays the contributions directly or pays you a cash salary to fund your contributions.
The opinions expressed herein are based on the information as received from you and the assumptions made.
Mazars takes no responsibility for the accuracy of the information provided here and have not verified any part thereof.
If the information as set out herein or our understanding thereof is in any way incorrect, please inform us immediately in order for us to amend the opinions where necessary.
It should be emphasised that the above is only a general outline of very complex provisions so that you can consider in principle whether you require further detailed advice.
We recommend that no action should be taken on the information provided without further detailed advice.
Craig MacFarlane of Bidvest Bank also responds:
Will you be paid in rand or in a foreign currency? If you will be paid in rand you will know every month what your salary is.
If you will be paid in a foreign currency your rand amount will depend on the exchange rate, so you might win if the rand weakens and you might lose out if the rand strengthens.
An international company has hired me to start their local office and offered to pay me a set amount.
I am worried that I might end up paying more tax than necessary.
How can I structure my cost to company to pay the least amount of tax?
Elzahne Henn, associate director at Mazars, responds:
For purposes of the response we have assumed that you are a South African resident for tax purposes.
If the employer pays you on a cost to company basis you can structure the benefits to suit your needs, but any structuring can only be done if your employer agrees to it.
It should be noted that cost to company packages is not a vehicle to earn tax-free remuneration or to increase or decrease your take-home pay.
It is a structure to help an employee to understand the full value of his or her cash salary and benefits.
Examples of benefits that can be included in a cost-to-company package are: A thirteenth cheque, retirement fund contributions, medical scheme contributions, group life cover, income protection, a travel allowance (if the employee is required to travel for business purposes) and a company vehicle.
You are entitled to structure your cost to company in a way that minimises the tax you pay, but these opportunities are very limited.
Tax deductions in respect of contributions to retirement funds remain beneficial from a tax perspective and are worthwhile for you to explore and discuss with your employer.
In the event that you are required to travel for business purposes and your private travel is limited, a travel allowance can be used to the maximum tax advantage.
This is provided that you maintain accurate records of your mileage travelled for business purposes.
However, if you travel less that 8 000km a year for business purposes a reimbursive allowance will be more beneficial from a tax perspective than a fixed travel allowance.
This is because the employer may then reimburse you a tax-free amount at a rate of R3.30 (from March 1 2014) per kilometre travelled for business purposes.
A reimbursive allowance, however, does not form part of your cost to company package.
The medical scheme contributions your employer pays on your behalf are fully taxable and you get a tax credit or rebate for contributions paid for yourself and your dependants.
The credit is based on the number of dependants for whom contributions are paid and not on who makes the contributions or the cost of the medical scheme option.
From a tax perspective it is therefore irrelevant whether the employer pays the contributions directly or pays you a cash salary to fund your contributions.
The opinions expressed herein are based on the information as received from you and the assumptions made.
Mazars takes no responsibility for the accuracy of the information provided here and have not verified any part thereof.
If the information as set out herein or our understanding thereof is in any way incorrect, please inform us immediately in order for us to amend the opinions where necessary.
It should be emphasised that the above is only a general outline of very complex provisions so that you can consider in principle whether you require further detailed advice.
We recommend that no action should be taken on the information provided without further detailed advice.
Craig MacFarlane of Bidvest Bank also responds:
Will you be paid in rand or in a foreign currency? If you will be paid in rand you will know every month what your salary is.
If you will be paid in a foreign currency your rand amount will depend on the exchange rate, so you might win if the rand weakens and you might lose out if the rand strengthens.