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Labour Legislation Index

Taxation of labour brokers, personal service companies and personal service trusts


Enquiries:                                      Operational Policy      Amanda van Vuuren   (012) 422 6967

                                                         Rhona Ford    (012) 422 6966

                                                         Susan Kruger   (012) 422 6951


12 July 2000

South African Revenue Service


299 Bronkhorst Street, Brooklyn

Private Bag x923





The following information must be brought to the attention of all Employers, in addition to the amended paragraph 1 of the Fourth Schedule to the Income Tax Act 1962 and the IRP 10 (Guidelines for Employees Tax, Volume 41, page 52 and 54), with reference to Employment Companies and Labour Brokers.

1.   General

It is the responsibility of Employers to whom a Company, Close Corporasion, Trust or Labour broker render services, to determine and pay over the employees tax liability of such "employee".

Please note:  If the entity which renders the service to the Employer comply with the guidelines of this notice during the year of assessment, the Employer must deduct employees tax in respect of such entity.

2.   Labour broker (proviso which is in addition inserted to paragraph 2(5)(a) of the Fourth Schedule)

An Exemption certificate will not be issued in respect of any application received on or after 1 July 2000, if —

2.1      more than 80% of the gross income of such person during the year of assessment consists of or is likely to consist of an amount received from any client of such person or associated institution in relation to the client;

  • the labour broker provides to any of its clients the services of any other labour broker; or
  • the labour broker is contractually obliged to provide a specific employee of such labour broker to render any service to its client.

3.   Personal service company / Personal service trust (supplemented to the definition of "employee" as well as additional definitions supplemented to paragraph 1 of the Fourth Schedule)

Where a Company/Close corporation or Trust whose year of assessment commences on or after 1 April 2000, complies with the definition of a "Personal service company" or "Personal service trust", such Company/Close corportion or Trust will be regarded as an "employee" according to the Fourth Schedule with effect from 1 August 2000.

3.1      A "Personal service company" or "Personal service trust" means any Company/Close corporation or Trust (excluding a Labour broker), where service is personally rendered by a person who is a connected person in relation to the Company/Close Corporation or Trust, on behalf of the Company/Close corporation or Trust, and —

  • the person would be regarded as an employee of the client if such service was rendered other than on behalf of the Company/Close corporation or Trust to the client; or
  • the person, Company/Close corporation or Trust is subject to the control or supervision of the client as to the manner in which, or hours during which the service is rendered; or
  • the amount paid in respect of service consist of earnings which are payable at regular daily, weekly, monthly or other intervals, or
  • where more than 80% of the income of the Company/Close corporation or Trust during the year of assessment, consist of amounts received from any client or associated institution,

but EXCLUDING a Company/Close corporation or Trust which employs throughout the year of assessment more than three full-time employees (other than shareholders, members or connected persons) who are on a full-time basis engaged in the business of the Company/Close corporation or Trust of rendering any service.

4.   Taxability of Company/Close Corporation, Trust or Labour broker

The amount of employees tax which is deductible, is as follow:

4.1      A Personal service company is subject to employees tax at a rate of 35%.

4.2      A Personal service trust is subject to employees tax according to the rates applicable for a trust.

4.3      An individual who is identified as a labour broker is subject to employees tax according to the rates applicable for individuals.

4.4      A Company/Close corporation who is identified as a labour broker is subject to employees tax at a rate of 35%.

Please note:  If an employee is in possession of an exemption certificate or tax directive, employees tax must be determined according to the instructions on such certificate or directive.

5.   Additional information in respect of the issuing of IRP5/IT3(a) certificates

To identify a Personal service company, Personal service trust or Labour broker, the nature of person (refer to page 178 of the IRP 10, volume 41) must be indicated with the following additional fields:

·       'H"  for Personal service company or Labour broker - tax at 35%.

·       "K"  for Personal service trust - tax at rates applicable to trusts.

The mandatory fields for this nature of person is the same as that of a company or trust.


Gary Watkins

Gary Watkins

Managing Director


C: +27 82 416 7712

T: +27 12 669 3289

T: +27 11 462 0982

F: +27 86 689 7862

Website: www.workinfo.com
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