SARS has been enforcing penalties on dormant companies where companies have failed to submit tax returns and the request for such returns to be lodged has been ignored.
Starting a company in South Africa isn't an overwhelming task. An inspiring business idea or advice to secure certain assets often triggers the decision. However, as time passes and circumstances change, these businesses may cease operations, or the anticipated restructuring of portfolios may lose its appeal.
These 'abandoned' companies, often referred to as dormant, despite not trading, still have an obligation towards the South African Revenue Service (SARS). Since 2012, SARS has been authorised to take legal action against such companies for their continuous failure to file tax returns. The enforcement of this has become more evident since December 2022.
While the initial penalty levied by SARS is a seemingly nominal R250 per month, it can rise dramatically depending on the company's profitability prior to going dormant, and it compounds over time if unresolved. Initially, SARS attempts to recover the penalties from the company itself. However, given its dormant status, company accounts are often depleted, or the company lacks assets registered in its name. Directors and public officers may be held accountable in specific cases if tax return submissions are persistently ignored.
Corporate entities and individuals are advised to conduct a search through the Companies and Intellectual Property Commission (CIPC) to identify any dormant companies registered in their names and to assess any potential tax liabilities. If these liabilities exist, it would be prudent to negotiate a settlement with SARS and seek advice on whether deregistration or liquidation of the company is the optimal path.
Neglecting to address this issue may lead to SARS securing a judgement against the company, director, or public officer. Empowered by legislation, SARS can obtain such a judgement by merely lodging documentation with a court, potentially without your awareness. Moreover, based on this judgement, SARS can instruct a bank to settle the outstanding penalties from funds held in your account.
However, SARS is not unreasonably punitive and ultimately, individuals and companies can avoid penalties by adhering to proper compliance practices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.