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Employing foreign entertainers: A tax risk for event organisers

25 June 2014   (0 Comments)
Posted by: Author: Lesedi Seforo
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Author: Lesedi  Seforo (SAIT Tax Technical)

South Africa’s attractiveness to foreign entertainers

South Africa has become not only a popular destination for tourists, but foreign artists have also taken a keen interest in the country. The yearly line-up at the Cape Town International Jazz Festival, coupled with recent tours from the likes of U2, Bruce Springsteen and Justin Bieber prove just how far South Africa has come in attracting top foreign musical talent. A closer look at the events management industry will reveal that in addition to the big stars, many lesser known foreign entertainers have also "come to the party”, performing at smaller venues ranging from clubs to awards ceremonies. 

Don’t forget tax

The organisers of such events are not always larger companies like Big Concerts, but entrepreneurial individuals with companies falling into the SMME category. Since the best tax advice tends to follow the big bucks, smaller events management companies, like other SMMEs, tend to find themselves being ignorantly non-compliant with the tax laws. 

A potential pitfall is with regards to the aforementioned foreign entertainers. Local events organisers utilising the services of such entertainers need to be aware of their tax obligations to the South African Revenue Services (SARS). Our government is very aware that we cannot have foreign performers earning considerable amounts of money (tax-free) over very short periods of time. 

To remedy this, Treasury amended the tax laws a number of years ago. In addition, SARS established the ‘Foreign Entertainers and Sportspersons Unit’.  

The withholdings tax on foreign entertainers

In short, the tax law states that a foreign entertainer who receives any amount in respect of entertainment activities performed in South Africa is subject to a 15% tax on that amount. A foreign entertainer includes any person who performs any activity as a theatre, motion picture, radio or television artiste or a musician. It also includes persons who take part in any other entertainment type of activities.

How SARS collects the tax 

To overcome the arduous task of attempting to collect tax from an entertainer who has returned to his home country, SARS collects the tax by using the South African resident (whether an organisation or an individual) who must pay the foreign entertainer for the services rendered. The resident is required to withhold 15% of the entertainer’s fee and pay it over to SARS before the end of the month following the month during which payment to the entertainer was made. Failure to do this will result in the resident being personally liable for the 15% tax. The payment to SARS must be accompanied by a tax return.

An example

To use an illustration, let us assume that ‘Fun Times’ Pty (Ltd), a local events and promotions company, hires a Mr. John Jazzy to perform at an awards function for R100 000 on the 29th of January. According to the agreement between both parties, payment to Mr. John Jazzy must be made on the 3rd of February.

In order to be tax compliant, Fun Times must pay John Jazzy R85 000 (R100 000 minus the 15% tax on the R100 000). The R15 000 tax which was withheld from John Jazzy’s fee must be paid to SARS before the end of March. 

Should Fun Times not withhold that R15 000 tax and pay it over to SARS, they will become personally liable for the tax. 

Notification to SARS of the entertainer’s performance

Once the local events organiser has concluded the agreement with the foreign entertainer to perform in South Africa, SARS must be notified of various details pertaining to the performance, such as the date and location. This is done via a specific form which must be filled in by the local event organiser. The form must be accompanied by supporting documents such as copies of the contract between the organiser and the foreign entertainer and the latter’s passport. This must be sent to SARS not later than 14 days after the agreement between the organiser and the entertainer has been concluded. 

Conclusion 

SARS is as vigilant as ever, always looking to collect as much tax as is legally possible. If they were to conduct industry-wide audits of events organisers, would your organisation be found to be personally liable for the 15% tax on foreign entertainers? Consult your SAIT tax professional if you’re an events organiser who regularly deals with foreign entertainers.

 


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