The CIPC to intensify compliance enforcement from January

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The Companies and Intellectual Property Commission (CIPC) has announced new requirements for companies and close corporations when completing their Annual Returns.

From 1 January 2020 it will be mandatory to complete a compliance questionnaire when submitting the Annual Return.

The rationale for the questionnaire

The CIPC will use this questionnaire to assess areas of non-compliance with the Companies Act (“the Act”) and will take action where it sees the need to address any weaknesses.

It also serves to ensure that directors and officers of companies know and understand the mandatory compliance aspects of the Act.

If you don’t complete the questionnaire, then you won’t be able to file the Annual Return.

What is in the questionnaire?

You are asked to state whether you comply with a list of important areas of the Companies Act (for smaller companies, you can mark quite a few of these as non-applicable).

The main areas covered are:

  • Have you satisfied yourself that the company meets liquidity and solvency requirements?
  • Does your Memorandum of Incorporation, a new shareholders’ agreement or changes to one, or changes to company rules comply with the Act?
  • Have you compiled Annual Financial Statements in line with the Act’s requirements?
  • Do you handle financial assistance to directors correctly?
  • Is your shareholder register compliant?
  • Do directors run the company along the stipulations set out in the Act?
  • Do you have a company secretary?

It is an offence to make a false declaration to the CIPC, so when doing this for the first time, make use of your accountant’s services.

When to submit the Annual Return

Companies are required to submit their Annual Return in the thirty business days after the anniversary of their date of incorporation – i.e. if the company was incorporated on 10 June then you have thirty business days from 11 June to complete the return.

Close Corporations have the two months from the first day of their month of incorporation to submit their returns i.e. if your date of incorporation is 10 June, then the Annual Return needs to be in on or by 31 July.

Don’t forget Annual Financial Statements (AFS) must be submitted, in XBRL format, with the Annual Return. If the date for your Annual Return falls before you have finalised your current AFS, then submit last year’s AFS.

If you fail to submit an Annual Return, the CIPC will take this to mean your company is no longer active and will begin company deregistration proceedings – the last thing you need is to find your company effectively doesn’t exist so make sure you acquaint yourself with these new requirements and ask your accountant for advice in any doubt.

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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Important: SA’s rankings on the ease of doing business index, and an exciting new business registration platform

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In his recent State of the Nation Addresses, President Ramaphosa vowed to speed up economic growth. He has set several key milestones to measure how effectively he is putting South Africa back on a positive economic path, such as attracting R1.2 trillion in investment in five years (in less than two years well over half of this has been raised).

One of these milestones is to improve South Africa’s position in the “Doing Business Index” (often referred to as the “Ease of Doing Business Index”) which ranks 190 countries around the world – the higher up you are on this World Bank scale, the easier it is to trade in your country which will attract businesses to enter the local market.

Where South Africa stands   

The President has set the goal of South Africa climbing into the top fifty of the Index in the next three years. Currently we sit at number eighty-four and unfortunately slipped two places in the 2019 survey. In Sub-Saharan Africa we rank fourth behind Mauritius, Rwanda and Kenya.

How the Index works

It compiles several measurements for businesses like:

  • Ease of getting a construction permit. Here our ranking is 98.
  • Getting electricity where we are number 114.
  • Registering property – ranked 108.
  • Obtaining credit. South Africa is just in the top half at number 80.
  • Protecting minority investors – in this field we are ranked 13th mainly due to the excellence of our Companies Act.
  • Paying taxes which sees us at number 54.
  • Enforcing contracts, number 102.
  • Resolving insolvency which is not too bad at 68.
  • Cross border transactions where we are down at 145. This is something we are working on with our trading partners.
  • Starting a business which is disappointing as we are number 139.

A new online one-stop business registration platform

Clearly, there is quite a bit of work to do and one recent initiative launched by the President is the creation of CIPC’s “Biz Portal”. This is  a one-stop online platform whereby you as an entrepreneur can register a business, can register for tax, UIF and the Compensation Fund, register a domain name, open a bank account and get a BEE certificate. All for R175. The aim of the Biz Portal is that all these tasks can be completed in one day whereas it otherwise takes forty days to open a business in South Africa.

This will be a significant step forward in moving South Africa up in the Doing Business Index.

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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Crunch time for SA – The medium term budget policy statement and what it means to you

Logista_Nov2019_01“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.” (Shakespeare)

For several years commentators have been sounding alarm bells about South Africa’s steadily rising debt whilst economic growth has stalled. As the Minister himself put it: “Our problem is that we spend more than we earn. It is as simple as that”. On top of that State Owned Enterprises (SOEs) have been poorly led and even more poorly governed as President Ramaphosa recently said that R500 billion has gone missing due to state capture.

This has put our debt past 50% of GDP (from the low twenties a decade ago), nonproductive government spending has risen, salaries now account for 35% of state expenditure and low economic growth stifles tax collections. In addition, Eskom has received extra funding of R52 billion this year. As they say, something has to give.

There have already been consequences as two of the three major ratings agencies (Fitch and S&P) have downgraded South African debt to junk status and Moody’s (as we discuss more fully below) are closely watching.

South Africa is also in a delicate socio-economic position with rising social unrest, growing unemployment and it is recovering from state capture. Thus, drastic spend cuts or growth in SARS income are unrealistic. That leaves selling state assets as the most viable alternative to arresting the ongoing rise in our debt.

It is not just ratings agencies that have been anticipating the MTBPS but also business which could throw large resources into the economy if it sees that government is committed to turning around the slide of recent years.

So, how did the Finance Minister do?

The initial reaction to the MTBPS was one of disappointment, symbolized by the rand shedding 2.5% against the US dollar and bond yields dipping. It was not just that the Minister painted a picture of a sliding economy over the next three years but there were few specifics as to how the South African economy is going to get out of an increasingly nightmarish hole.

For example, Minister Mboweni was expected to provide some detail as to how Eskom’s debt (R450 billion) was going to be restructured but all he said was that Eskom must implement meaningful reforms before tackling its debt. In the Minister’s own words: “In addition to low growth, South Africa’s biggest economic risk is Eskom … Over the medium term and beyond, government will manage the massive risk to the economy and the fiscus associated with Eskom.”

The main indicators – bad news and good 

  • GDP was forecast at 1.5% for 2019 in the February Budget, it is now forecast at 0.5% for this year, rising to 2.4% in 2023.
    • Comment: This is disappointing as population growth is 1.6%, so in reality GDP will grow by 0.8% in 2023 and be negative this year.
  • Inflation will remain benign throughout this period staying in the 5.3% average.
    • Comment: As inflation hits the poor the hardest, this is good news.
  • Debt/GDP which is a key ratio for ratings agencies will progressively deteriorate, a function of low economic growth and rising costs. This is 56.8% for the current year and increasing to nearly 69% in 2023. This is before support to State Owned Enterprises (SOE) like Eskom and South African Airways.

Comment: If we look back a few years, government were saying that Debt/GDP would peak at around 50%. We have gone through that and are now looking at 70% and beyond. The nation is in danger of falling into a debt trap – rather like the consumer who, unable to borrow more money, finally maxes out his credit cards and spends most of his time paying off debt.

So, what does that mean for us?

The Finance Minister showed a bleak scene and clearly the government is struggling to get consensus as to how to address what is becoming a very serious problem. The Minister highlighted that in the next three years R150 billion has to be found either in tax increases or spending cuts. In the February budget he will give the nation concrete measures to be taken.

For the man in the street expect more tax increases in the February budget.

Moody’s and our junk status risk

On 1 November, Moody’s changed its outlook on South Africa from stable to negative. In a blunt statement, it gave the government notice that unless it comes up with “a credible fiscal strategy to contain the rise in debt” in the budget in February, Moody’s will most likely downgrade South Africa to junk status. That will trigger overseas financial institutions selling an estimated US$15 billion of South African bonds.

That would of course hurt us all and leave our nation, as Shakespeare put it, “bound in shallows and in miseries”. Let’s hope we dodge that one – on average it takes a country five to six years of hard slog to get out of junk status.

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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Businesses: Think strategically when cost cutting

Logista_Nov2019_02We all know times are tough and many companies are embarking on cost cutting exercises. Unfortunately, this is a necessary procedure but think of the impact on staff morale and the potential loss of productivity when undertaking cost reduction. You don’t want to end up leaving your business worse off.

A few tips

  1. Communicate effectively. Cost cutting is not a pleasant experience, so be open with staff – why it is necessary, how much you plan to save and how this exercise will make the business more sustainable.
  1. Be fair. If you plan to stop business class travel for some employees but keep it for senior executives think of the possibility of staff resentment and the potential for an “us versus them” situation to develop.
  1. Keep perspective. A company recently stopped funding junior staff’s cell phones. Not only did this cause widespread anger but the actual saving was too small to have a real impact on reducing expenses.
  1. Think it through holistically. In another example a business made significant cuts to travel expenses and used video conferencing for team members to communicate with each other. This reduced team ethos, effectiveness and productivity was lost.
  1. Think of the side effects. In another travel cost cutting scheme, staff were not allowed to use taxis. This, in effect, stopped travel after hours as staff then opted to travel during business hours. Thus, the company lost up to two working days a week when staff undertook business trips.
  1. Don’t skimp on contractors – such as not letting them use your canteen. They do important work for your company, so don’t put this at risk by treating them badly.

Use common sense as your guide when you undertake cost cutting.

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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Cut your electricity bills!

Logista_Nov2019_03Electricity has become a bane in our lives – not only does it increase in price by double digits each year, but we also face the ongoing possibility (perhaps probability) of load shedding.

But we can be proactive as there are many ways to cut costs and with some research and a good plan you can cut electricity costs by 40%, by taking steps such as:

  • There are several things you can do with your geyser. Turning the thermostat down can save 150kwh (kilowatt hour) per month, putting in a timer can save even more (although it does cost up to R1,250), whilst putting on an energy blanket also saves money.

    A heat pump can reduce 60% of the geyser’s energy consumption but they are expensive (up to R16,000) and noisy.

    Solar geysers are slightly more expensive than heat pumps, are quiet and operate well (assuming your area has plenty of sunlight).

    Remember that a geyser makes up 40% of your monthly electricity bill

  • Switch off unnecessary lights as these costs add up. Get into the habit of turning off lights you aren’t using.
  • LED lights are big savers – it’s common sense that moving from 40 watt to 3 watt bulbs will drive power costs down – up to 2000 kwh per month. Prices for LED bulbs have also dropped rapidly, and you can purchase them for R20. Don’t forget downlights and outside lights when considering LED as these latter two use 40 to 45 watt bulbs
  • Washing in cold water also yields savings as do new fridges which can save up to 150 kwh per month but cost from R7,000 upwards.
  • Use of gas for cooking also saves as a 9-kilogram gas cylinder only costs R200 for up to 6 months.
  • Finally, there is solar which is expensive (costs vary depending on requirements and scale). If your local authority allows you to sell back your excess solar power to them, then solar becomes an attractive investment.

    Solar power is getting cheaper and more sophisticated and offers you the     possibility of reducing or eliminating your exposure to load shedding.

There are many ways to save on electricity – why not start 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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5 reasons to never overlook your business plan

Logista_Nov2019_04“How can I be so stupid?” (John Cleese recalling when he pitched the BBC to start the Monty Python’s Flying Circus show without a business plan)

When setting out on a new venture or adding a new section to your business, it pays to have a strategy as to what you want to achieve and how you want to go about accomplishing your vision.

Be thorough when doing this and do a comprehensive business plan.

Why a business plan is important

  1. Starting a business or changing your operation invariably requires funding from either a bank, investors or both. Unless they can see a clear-cut plan of action, an in-depth knowledge of the marketplace and what you plan to achieve, it is unlikely you will be able to get any money for your business.
  1. Doing a business plan is a substantial commitment as it involves research plus giving every section of the proposed venture deep thought. Your efforts will be rewarded as your new venture will be a much smoother process if you have done a business plan. By considering all the risks and pitfalls in your plan, you will avoid making some costly and potentially ruinous mistakes. In the long term your business will be more profitable and sustainable.
  1. A good business plan will enable you to focus on the important areas of the company, something you will be grateful for as many issues will arise as the business unfolds and having good knowledge of the sector you are in will more easily allow you to realise which of these issues is important and requires your attention.
  1. Having a good roadmap of the business will also let you effectively measure the progress you are making – measurements of how a company is performing are important and a business plan will give you a baseline to rate how you are doing.
  1. A good business plan will greatly increase the chances of your new venture being successful. On an ongoing basis, you can update this plan to continually assess how the company is performing.

In next month’s issue we’ll share some thoughts on how to go about preparing your business plan…

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 websites of the month: Buying or selling anything? How to use facebook marketplace

Logista_Nov2019-20By all accounts Facebook Marketplace is giving Gumtree, OLX and other online classifieds a real run for their money in both the personal and business markets. It is now used every month by 800 million people in 70 different countries.

Have a look at Facebook’s “How Marketplace Works” guide here for a step-by-step guide on buying and selling anything, sorting by distance or new listings, notifications, following, safety and trust issues and so on.

For more ideas, and for 5 ways to use Facebook Marketplace for your business, read “Facebook Marketplace: The Marketer’s Guide” here.

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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Tax Clearance Certificate being terminated

Logista_Sep-03The issuing of the printed Tax Clearance Certificate (TCC) will be terminated after 25 October 2019, as we are fully implementing a more secure and electronic Tax Compliance Status (TCS) system.

Since the implementation of the TCS system in 2015, we advised taxpayers that our goal was to terminate the use of the printed TCC, and would stop issuing TCCs at a future date.

We have now reached a point where the ability to print a TCC will be terminated, and the TCS PIN will have to be used by taxpayers to share their tax compliance status electronically with third parties. In addition to terminating the ability to obtain and/or print a TCC, all active TCCs that are currently in circulation will be cancelled. You will therefore no longer be able to verify or print it.

You are encouraged to familiarise yourself with the electronic TCS system and the use of the TCS PIN, so as to be prepared when we entirely terminate the TCC concept.

The secure and convenient electronic TCS PIN provides you with a way to authorise any third party (an organisation or government department) to view your tax compliance status online via eFiling by providing them with the PIN. It will present them with your overall tax compliance status as at the date and time they view it, instead of your tax compliance status as it was at the date when the TCS PIN was issued to you. To protect the confidentiality of taxpayer information, no other information will be accessible to a third party through this process.

It is important to remember that your tax compliance status is not static, but changes according to your continued compliance with tax obligations.

For more information on how to use the TCS PIN, please refer to the “Guide to the Tax Compliance Status Functionality on eFiling”.

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 shareholder agreement versus your Memorandum of Incorporation – There is only one winner

Logista_Sep-03Shareholder agreements usually form the backbone of shareholder relationships as they govern, for example, how shareholders sell their shares, how shareholder disputes are settled and the type of authority required for certain transactions.

The Companies Act makes it clear that:

  • If there is any conflict between the MOI (Memorandum of Incorporation – the statutory document which per the Companies Act “sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company”) and the shareholders’ agreement, the MOI will prevail.
  • Similarly, if there are any differences between the Companies Act and the shareholders’ agreement, then the Companies Act will take precedence.

The case that tested a shareholder agreement v the MOI

A company issued a new MOI in 2012. This MOI conflicted with the shareholders’ agreement and some shareholders approached the Court to have an order granted that the shareholders’ agreement governs the relationship amongst shareholders and thus supersedes the MOI. The shareholders’ agreement contained a non-variation clause which stated that no changes to the agreement could be made unless all shareholders agreed in writing.

The Court refused to grant the order and said that the issuing of the new MOI was done lawfully and in line with the requirements of the Companies Act. The shareholders’ agreement so materially conflicted with the MOI that it was now effectively null and void.

As a shareholders’ agreement is fundamental to the workings of shareholders, it is important to carefully consider how the MOI will relate to the shareholders’ agreement. Thus, any potential conflicts should be ironed out when drafting either a new MOI and/or a shareholders’ agreement.

Take your accountant’s advice when doing this to avoid extra cost, aggravation and time taken to resolve any differences which may surface when you need to enforce your shareholders’ agreement.

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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Be ready for SARS employee audits

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“Forewarned is forearmed” (Wise old saying)

SARS is having trouble meeting its revenue targets and this is clearly putting enormous pressure on the South African economy. Further economic deterioration in the economy will probably result in a downgrade to junk status by Moodys. This will mean that all three of the major ratings agencies will have consigned our economy to junk status which means further currency weakness and probably a recession.

Most of the tax paid in South Africa is paid by individuals and it is logical that SARS will focus on maximizing its revenue with this segment of taxpayers. Thus, one can expect more auditing by SARS of employees’ tax returns.

Implications for employees

Any SARS queries will be initially directed at employees who will have to justify what they have claimed. Most employees will go back to their employer and say, for example, ‘there is this query on my car allowance and how should I respond?’

It would make sense for employers to ask all employees to run SARS’ questions through the employer so that SARS receive a consistent answer (employees may have their own tax adviser to help the employee respond to the query, but the adviser may not understand how the employer’s tax administration works).

Implications for employers

If SARS are not satisfied with the responses to their queries, they may start to look at how the employer administers its employee tax obligations.

SARS places a substantial onus on employers to collect tax and to pay it over to the Revenue authorities. This involves a knowledge of taxes like:

  • Remuneration and benefits paid to:
    • expatriate employees
    • local employees
    • executives and directors
  • Retirement benefits for employees, executives and directors
  • Payments to labour brokers and independent contractors
  • Share incentive schemes
  • Cash book payments
  • Gifts, prizes, awards and gift vouchers
  • Loans to employees
  • Company cars
  • Travel allowances and reimbursements
  • The Employment Tax Incentive (ETI).

These taxes are all different and require an understanding of tax legislation and the administrative systems required to process and collect the taxes.

In making their enquiries of the employer, SARS will most likely look to get an understanding of the employer’s systems and if dissatisfied with the response may audit the employer.

An audit can take up to one year to complete and apart from the stress of the audit there will be penalties, interest plus tax due where SARS finds the tax has been incorrectly calculated. SARS can also go back several years when they find errors, and this can become a costly exercise. At the moment, SARS appears to be homing in for the most part on the ETI, labour brokers, company cars and travel allowances – perhaps therefore pay particular attention to these taxes.

So, it is a prudent idea to frequently test how robust your systems are and how well you understand the tax laws. SARS often tweaks the law and issues interpretation notes on how businesses should levy and pay over tax.

Having an independent viewpoint can be invaluable when testing your systems – make use of your accountant to help you as apart from being at arm’s length he or she has the skill and experience to assist in this important exercise.

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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