The axe begins to fall for those named in the Panama Papers

A5We live in the age of leaks. The latest is the “Panama Papers” which details how wealthy people and companies have used off-shore accounts to protect and hide their assets from their country’s authorities.

1,700 South African names appear in the leaked Panama Papers. In a parliamentary briefing, a SARS official said that 79 Panama companies had been matched to SARS data and it had linked this to 81 South African residents.

Whilst opprobrium has instantly attached to those named, we should recognise that the truth is that the vast majority of transactions associated with the Panama Papers are, in the words of Barack Obama, almost certainly legal schemes.

Where does this leave individuals or companies who have been named?

A new Special Voluntary Disclosure Program (SVDP)) commences on 1 October this year. It is likely that South Africans who had set up unlawful structures in Panama were planning to enter the SVDP when it opened in October.

However, where SARS or the Reserve Bank has already notified taxpayers of a pending (or the commencement of) an audit or investigation, such taxpayers cannot use the SVDP.

It is apparent that SARS and the Reserve Bank plan to proceed against taxpayers before October, thus preventing these taxpayers from using the SVDP.

The onus is now on defaulting taxpayers to take advice now on approaching SARS and the Reserve Bank as quickly as possible – get to them before they get to you. There is still an existing VDP running and making full disclosure will prevent the risk of being exposed to criminal charges. There will also be a reduction of penalties faced by taxpayers.

Bear in mind also the international treaties entered into by more than 100 nations (commencing in September 2017) which will introduce an automatic sharing of information between the Revenue authorities of these countries.

The leaking of the Panama Papers only underscores that it is becoming increasingly difficult to hide assets by using offshore structures

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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A good news story: Farming is doing better than we think

A4One of the stories that underpins the current wave of pessimism around our economy is farming. We read stories about:

  • Farmers being murdered and driven off their land.
  • The government plans to ban all foreign ownership of land.
  • New ways are being sought to make it easier (and cheaper) for the expropriation of agrarian land.
  • In the late 1980s there were more than 65,000 white-owned farms. Today there are less than half of that.
  • The 2011 agricultural strike lead to a 50% rise in the minimum wage rate. This led to the belief there would be increased mechanisation in the farming industry which would result in widespread layoffs of unskilled labour.
  • The government acknowledges that the bulk of subsistence farmers settled on formerly white-owned farms have not been viable farmers.

These points are true but they don’t reflect the full story of what has in fact happened.

The positives

  • Farming output has risen by 40% since 1994
  • On the whole South Africa is an exporter of agricultural products (imagine where the currency would be if this wasn’t the case)
  • Employment in the commercial sector has risen by 250,000 since 2011- from 626,000 to 876,000 earlier this year. This is a 40% increase.
  • South African farmers have adapted to the shifts and demands of globalisation and have shown considerable resilience. For example, there has been a drop in the demand for beef but farmers have shifted into other areas such as horticulture
  • Farming income doubled between 2007 and 2012
  • Just under 1.7 million people make a living from subsistence farming. Add to this the 876,000 working in the commercial sector and you have a significant number of people earning a living on the land.
  • Agriculture has a significant multiplier impact on the economy. For every R1 generated economic output will grow by R1.81.

Farmers not only face adverse weather conditions but they get little support from the authorities (in contrast to Western Europe and the United States). Yet they have more than coped with this by growing productivity substantially. This productivity leap has enabled the government to begin the process of transformation (nearly 10% of commercial land has been acquired or just under 8 million hectares) without it seems any harmful economic consequences.

Farmers still confront many challenges – the proposed Expropriation Bill is one example. Yet we can be confident they will weather the storm and continue to be a vital cog in the economy.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Company directors: Beware of the risks with resolutions

A3“The devil’s in the detail” (wise old idiom)The “new” Companies Act (the Act) has some requirements which can easily be overlooked. They may seem to be minor and technical, but not complying with them could expose you to major risks.  In our increasingly litigious society, it is important to be thorough.

For example – resolutions must be sequentially numbered

In addition to being dated, resolutions are required to be sequentially numbered. Remember the law now (subject to the Memorandum of Incorporation) allows resolutions to be passed by electronic media which can make it more difficult to keep track of resolutions.

Ensure that your company has put in place such a numbering system. If you outsource your company secretarial function, check that your outsource partner has implemented this requirement.

The danger for directors

The Companies Act includes a general provision that: “Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention”.  You are accordingly exposed to substantial liability and should take cognisance of these and similar provisions, no matter how technical they may seem.

Record how directors vote at meetings or when passing resolutions

Another ancillary point is that it makes sense to record how each director voted on any matter, since directors risk liability for losses to the company arising from any breach of their fiduciary duties or required standards of conduct.

One of the defences available to directors when certain unlawful decisions are taken by the board of directors is to be able to show you voted against the matter. Thus, tabulating how each director voted can quickly establish who was against the decision made. Also remember, some years can pass before directors are sued.

Directors are tasked with overseeing and controlling of companies, so don’t overlook what seem to be small matters – they can come back to haunt you.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Brexit: What does it mean to you?

Recently, Great Britain voted in a referendum to leave the European Union (EU). This sent shock waves throughout the world. Where does Brexit leave South Africa which has strong ties to both Britain and the EU? The EU is by far our largest trading partner whilst Britain alone accounts for 4% of our exports and we currently run a R4 billion annual surplus with the United Kingdom.

A global phenomenon at play

To a large degree the vote was a rejection of the status quo and the affluent (London voted overwhelmingly to stay in the EU). This reflects a global backlash against globalisation and income disparities – even the United States is not immune as evidenced by the rise of Donald Trump.

Whilst we often think we are unique in the number of protests in South Africa, we are in line with global trends. China, for example, has over 50,000 protests a year.

New territory    

No nation has ever before exited the EU (it has 28 members), so what is going to happen is uncharted territory.

One option being mooted is that Britain will not actually leave the EU – the Westminster Parliament, for example, could vote to remain in Europe. However, new Prime Minister May has clearly ruled this out.

Brexit will be a negotiation between the EU and Britain which is clearly subject to how each party approaches and negotiates the breakup.

There are many scenarios out there, ranging from an amicable settlement whereby Britain remains part of the EU customs union to a complete separation. In between these poles are options where Britain has free access to certain sectors in the EU or has access to the EU market but will need to impose EU tariffs on other trade partners.

The fact that South African markets have largely recovered from the June 23rd vote indicates that financial markets, which tend to look 6 to 12 months ahead,  are now more comfortable that South Africa will be able to navigate a favourable solution when the outcome of the Brexit negotiations is known.

But – no one likes uncertainty

There is always the risk that Brexit will not be a smooth process which will make it difficult for South Africa to negotiate a favourable outcome with two extremely important but potentially antagonistic trading partners.

South Africa has one of the most liquid foreign exchange markets of developing nations and has already shown how volatile it is to events such as Brexit. This uncertainty is perhaps the biggest downside of Brexit.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Startups and small businesses: Consider crowdfunding

A novel and effective way of raising finance

It is well known that finance is extremely hard to raise for small and medium sizes entities (SMEs). Banks are very conservative and prefer to deal with the larger, more established businesses. The venture capital market is small in South Africa and many SMEs fail due to a lack of finance.

Globally, crowdfunding has taken off and has also been successful locally in the past few years.

What is crowdfunding?

It consists of an online platform that puts investors in touch with any kind of organisation that requires funding – it can for example be a startup business, a one-off project or perhaps an N.G.O. looking for funding.

The online platform tracks how the required funding is being met.

It is best illustrated by looking at a crowd funding portal or two – see examples like Startme http://www.startme.co.za/ and Jumpstarter http://jumpstarter.co.za/ – Google for more.

How do I make use of it?

Many of the funding requests fail and one of the most successful United States platforms has some excellent advice for using a crowdfunding platform:

  • You need to have expertise on the web and social media.
  • Plan and prepare. This is crucial. You need to have a great strategy for reaching investors. A video is a good tool for this. The video should come from you or a member of the team to communicate your passion and commitment.
  • Be transparent, honest and specific. The funding required should be detailed and not general. Thus, if you need R100,000 break this down into discrete amounts e.g. R20,000 for advertising, R20,000 for selling expenses etc.
  • Get your friends or colleagues to contribute – launching on a crowdfunding site with some funding already secured is a key success factor. US platforms advise that having 30% secured funding makes a considerable difference to the campaign.
  • Use influential people – well known bloggers, for example, can spread the message which can get momentum going
  • Always be proactive as being in frequent contact with potential investors will enhance your credibility. Make widespread use of social media platforms – they can be powerful e.g. the recent strike in Zimbabwe was inspired by a social media video.
  • Have set time limits for raising the funds. This creates a sense of urgency plus people have limited attention spans. Most sites recommend a one to two month fundraising cycle
  • Reward your investors. It doesn’t have to be large sums but if you are, say, making a documentary, give investors free copies. If it is for an N.G.O. send funders letters of thanks from the beneficiaries.
  • Have a good team in place as planning and executing the campaign are very time intensive
  • Always remember that some fund raising simply does not work. However many of the failed efforts have brought benefits as it has taught valuable lessons. In one instance, a business relaunched its campaign with fewer, more simple concepts and was then able to raise their required funding.

Tax issues  

There are many tax issues here – for example prepayments can fall into taxable income for the recipient. Speak to your accountant. This has the potential to derail a campaign.

Crowdfunding is up and running – it definitely works. Think about using it. 

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Your tax deadlines for July

A6The period for individuals to submit tax returns for the 2015/2016 period begins on 1 July. Important dates to remember for the 2015/2016 tax year are:

  • 23 September 2016 is the due date for manual and postal income submissions.
  • 25 November 2016 – eFiling if you are a non-provisional taxpayer.   If you plan to submit from a SARS’ office this is also the due date for filing (non-provisional).
  • 31 January 2017 – provisional taxpayers via eFiling.

If your IRP5 is wrong

Note that if you are an employee you will no longer be allowed to make any corrections to pre-populated IRP5 details. If you disagree with the information in your return you will have to approach your employer to correct it with SARS – your employer is by law obliged to do so.

Before you lodge a return at all, check that you are obliged to do so

Per SARS: “If you earn under R350,000 for a full year from one employer (that’s your total salary income before tax) and have no other sources of additional income (for example, interest or rental income) and no deductions that you want to claim (for example medical expenses, travel or retirement annuities), then you don’t need to submit a return” – but that’s just an overview and in any doubt ask your accountant for advice – the penalties for non-compliance are severe.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

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Small businesses: Speed up SME-friendly reform!

A5As you know, the small and medium business sector is held out to be the only sector that can produce the growth and job creation that our country so sorely needs.

The South African Institute of Chartered Accountants (SAICA) has once again commissioned a study into how SMEs see their businesses and their challenges, and where support will be most meaningful.  It will identify how SAICA can intercede with government to make it easier for you to do business and to create jobs.

Specifically:

  • They want to understand what it is that will help small and medium sized businesses to be more successful, so that they can lobby on your behalf with both Government and Big Business
  • They are interested to know what products and services the Accounting Profession can produce that will stimulate the growth of SMEs or make their lives easier and more profitable.

Tell government and big business what you need

For the research to be successful a strong level of participation from SMEs is needed.

It won’t take long – click on this link “2016 SMME Insights Survey” to get started.

Don’t delay, there is a deadline here – the survey closes on 15 July 2016.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Employers: Is it pay discrimination to differentiate on length of service?

A4In the Employment Equity Act (EAA) there is a wide definition of unfair discrimination which lists gender, race, religion and so on. Recently a phrase was tagged onto this discrimination clause which says “… or on any other arbitrary ground”.

Recently, this phrase was relied on in a case of unfair discrimination against an employer. The employer paid newly employed workers 80% of the full wage for the first two years of employment. Thereafter they moved up to the full wage.

Some newly employed staff (via their union) took the employer to the CCMA and alleged unfair discrimination in that they did exactly the same work as other employees who had been there two years or more. The employees won their case at the CCMA but this was reversed on appeal to the Labour Court, which held that: “The differentiation complained of was not irrational; was not based on an arbitrary unlisted ground; and was not unfair.”

What must the complainant prove?

The judgment set out what a complainant must prove to establish pay discrimination:

  • The work performed by the complainant is equal or of equal value to that of a more highly remunerated comparator; and
  • Such difference in pay is based on a prohibited ground of discrimination.

To show unfair discrimination on an arbitrary ground, the complainant, held the

Court, must identify the arbitrary ground, prove that it is the reason for the disparate

treatment and show that:

  1. The conduct complained of is not rational;
  2. The conduct complained of amounts to discrimination; and
  3. The discrimination is unfair.

The judgment gave weight to the government’s Code of Good Practice on Equal Pay

Remuneration for Work of Equal Value which states that it is not unfair

discrimination if the difference is fair and rational and based on “the individuals’

respective seniority or length of service”.  It also specifically recognises length of

service as a factor justifying differentiation in pay.

Thus in appropriate circumstances it is permissible to pay your staff based on their period of employment.    As always however, take full advice on your particular circumstances – our labour laws are complex and the consequences of non-compliance severe.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Rage: An effective tool for entrepreneurs and your staff

A3“Do not go quiet into that good night

            Rage rage against the dying of the light”

            (Dylan Thomas)

What is the defining moment when an entrepreneur starts a business?  Very often it is rage. He/she is sick of not being listened to, is bored to tears with the opinions of the boss until something snaps within them.

Most entrepreneurs spend a long time thinking about and nurturing their idea. Very often it is rage which becomes that “….. existential moment: a choice of action over paralysis.”

Rage is the enabler which allows people to break the bonds around them and go off on their path of entrepreneurship.

Can I use this in my business?

Ideas drive innovation and people, not companies, are the ones with ideas. In our rapidly changing world, these ideas could be the lever that drives your business forward.

Yet …

Reportedly 85% of people in companies have worries and feel differences on important topics but they never voice these concerns.

Not many businesses can afford to lose staff who have the potential to be entrepreneurs (think of the value they can add if their energy and ideas are harnessed). Work on your organisational culture so that staff are not only actively encouraged to vocalise their issues and ideas, but they know their ideas will be taken seriously. Many of today’s successful organisations, such as Google, have done precisely this and have seen rising profits and a stable work force.

Tim Cohen’s excellent opinion piece “Point of Order: Rage can stimulate entrepreneurial success” on the Business Day website  http://www.bdlive.co.za/opinion/columnists/2016/06/13/point-of-order-rage-can-stimulate-entrepreneurial-success is worth reading for more on this concept.

Channel the potential rage of your staff members into ideas that can help your business prosper.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Bitcoin: Learn about it now, it is here to stay

A2“Don’t miss the wave” (Old saying – not limited to surfers!)

Bitcoin is a digital currency which has grown rapidly since its introduction in 2009. Recently the UK issued an e-money licence to a finance house and Barclays Bank has become part of this process.

What is Bitcoin?

It is a digital currency whereby you can, say, pay anybody in the world without an intermediary (a bank) involved. It is thus much cheaper than using a bank and potentially just as effective.

The main features and advantages

The founder of Bitcoin (still anonymous) built a robust system:

  • The number of Bitcoins is limited to 21 million. This helps ensure that the intrinsic value of Bitcoins rises and is a hedge against inflation
  • The system is controlled by no one and is completely transparent. Thus, anybody can check all transactions at any time. This is called the blockchain. The system is thus self-regulating
  • Sophisticated cryptography protects the integrity of transactions. It is not possible to issue the same Bitcoin twice. If you do, your system will be out of line with other users
  • It is done on open source software which is not difficult to follow, is free and accessible
  • The system is easy to use.

What is the risk?

Like any online system it is possible for cyber criminals to hack into the system. The value of Bitcoins is also subject to volatility, so there is no guarantee of value although it has recently appreciated against the dollar (after dropping sharply in 2014).  There is also no legal protection for Bitcoin (as there is for example with “legal tender” like the Rand) so you use it at your own “sole and independent risk” (that’s a quote from the South African Reserve Bank).  Users can hide their identity so the potential exists for income tax fraud and evading exchange controls – which could bring unwanted attention from governments.

Applications in Africa

In Africa it has the potential for widespread use. The fact that Africa has many unstable currencies and has limited infrastructure means Bitcoins could be a “leap technology” that enables the continent to fast track economic growth, especially considering the widespread use of smart phones in Africa.

Bitcoins are here to stay and many commentators are calling them the next financial/banking disruptor.  Don’t risk losing out – learn all about them now!

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

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