Personal service companies and trusts | South Africa Tax Guide 2006

With effect from 1 August 2000, any personal services company or trust, as defined below, will be taxed on income at a rate of 355 and with effect from 1 April 2005 at 34%. Furthermore, the only allowable deduction will be limited to the amount of remuneration paid to the shareholders, members or other employees of the company or trust.

A personal service company or trust is characterised by the following:

a) the person rendering the service to a client is a connected person in relation to the company or trust, and

b) such person would be regarded as an employee of the client were it is not for the entity, or

c) such person would be subject to the control and supervision of the client, or

d) the amounts payable consist of earnings payable at regular daily, weekly, monthly or other intervals, or

e) more than 80% of the entity's income is received from any one client or associated entity of the client.

An exception applies to the above, if the entity employs more than three full time employees throughout the year of assessment who are not connected to the company or trust.