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South Africa reminds employers to make ETI claims

Thursday, 06 February 2014   (0 Comments)
Posted by: Author: Lorys Charalambous
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Author: Lorys Charalambous (Tax-News)

South African businesses have been reminded that their first monthly claim for the Employment Tax Incentive (ETI), which came into effect on January 1 this year, should be submitted by February 7, 2014.

The ETI is an incentive mainly aimed at encouraging employers to hire young and less experienced workers, by reducing the cost to employers of hiring employees between the ages of 18 and 29 through a cost-sharing mechanism with the Government.

The new tax incentive will function by decreasing the amount of pay-as-you-earn tax that is payable to the South African Revenue Service (SARS) for every qualifying employee that is hired by the employer. There will be no change in the wages that the employee receives but the effective cost of hiring the employee will be lower, hopefully making it more attractive for firms to increase employment.

Employers, who must be registered for employees' tax, can claim the ETI on a sliding scale for any employee between the ages of 18 and 29 who possesses a South African ID, was employed by the employer on or after October 1, 2013, and is receiving a monthly salary that is above the relevant minimum wage and less than ZAR6,000 (USD540) per month. If there is no legal minimum wage applicable in a particular sector, the monthly salary must be greater than ZAR2,000.

During the first year the ETI's value will be 50 percent of the monthly wage up to a maximum wage of ZAR2,000. For wages between ZAR2,000 and ZAR4,000 the value of the incentive will be ZAR1,000, and for wages between ZAR4,000 and ZAR6,000 the ETI's value will decrease linearly from ZAR1,000 to zero.

The value of the ETI will decrease by half during the second year. An employer may only claim the incentive for a two year period for each qualifying employee. In determining the first or the second 12-month period, only the months in which the employee was a qualifying employee are taken into account.

The ETI commenced on January 1, 2014, and will be available until December 31, 2016 (although its effectiveness will, before then, be reviewed to determine whether to continue with the incentive).There is no limit to the number of qualifying employees that an employer can hire, but the amount which may be claimed on qualifying employees must not be back-dated to October 2013, as was previously indicated.

Employers will calculate and claim the incentive on a monthly basis.The employer must identify all qualifying employees in respect of that month, determine the applicable employment period for each qualifying employee, determine each employee's "monthly remuneration," and calculate the amount of the incentive per qualifying employee.

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