Role of SARS in the Liquidation Process in South Africa

When a company or a close corporation in South Africa undergoes liquidation, the South African Revenue Service must be involved for tax purposes. In this scenario, the liquidator also acts as the representative taxpayer on behalf of the company. In this article, we understand the major role SARS plays in the company or CC liquidation process in South Africa.

SARS are a preferent creditor in a liquidation and are one of the first creditors to receive payment from the proceeds of the sale of assets in a company, if in fact there are assets in the company.

Who is the South African Revenue Service?

Let's begin by familiarising ourselves with the South African Revenue Service, or SARS.

SARS is a revenue service of the South African government that administers the country's tax system and customs service. The entity operates under the SARS Act 34 of 1997. SARS manages, administers, and implements the tax regime as designed by the Minister and National Treasury.

SARS exist to serve the following functions.

• Collection of all taxes and customs revenue due to the country;

• enforce compliance with tax and customs legislation; and

• facilitate legitimate trade via the customs services.

SARS also administers the personal income tax, capital gains tax, corporate income tax, value-added tax, skill development levies, unemployment insurance fund contributions, and employment tax incentives.

How is SARS connected with the Company Liquidation?

Just because a company or a close corporation undergoes liquidation, does not necessarily mean its outstanding tax liabilities are written off. There are various factors that determine what SARS will or will not receive as a preferent creditor. And since it is a tax-related matter, SARS will be involved.

Throughout the liquidation process, SARS must be informed about each milestone in the liquidation process. Whether it is an announcement to liquidate the company or the granting of a Provisional Order, SARS will receive a copy of such proceedings.

If SARS is not informed, the court will not move forward with the process until it is done so.

Once the company is liquidated, SARS will likely put a claim against the company with the appointed liquidator. SARS are regarded as a preferent creditor in a liquidation and receive proceeds from the liquidation in line with their priority in law. They may also come to you in case there are outstanding taxes to assist in clarifying and confirming the outstanding taxes owed to SARS. i.e. Company tax, VAT, PAYE, UIF, SDL as well as any penalties.

Role of SARS in the Liquidation Process in South Africa and Representative Taxpayer

During a liquidation, SARS is doing what they are supposed to do: collecting outstanding tax liabilities. In this process, a liquidator is appointed and acts as the representative taxpayer until the final liquidation order is granted.

According to SARS, the appointed liquidator acts as a public officer for a company or close corporation in liquidation. They are responsible for the tax affairs of a liquidating entity in South Africa. This makes the liquidator a representative taxpayer of the company or close corporation. As a representative taxpayer, the liquidator is responsible for the following duties to SARS.

• Keeping SARS in the loop about the liquidation process of the company;

• relevant engagements with SARS regarding the company;

• submission of outstanding tax returns; and

• payment of outstanding tax liabilities, once liquidated and if there are proceeds from the sale of assets in the liquidation. There are instances where the outstanding tax is written off if the company has no assets.

These are important duties, as outlined by the responsible Master of the High Court. A liquidator must comply with these requirements based on the relevant tax Act and the Tax Administration Act relating to a company or close corporation. Failure to comply with such duties may result in legal consequences.

Making SARS Aware of the Estate

From SARS point of view, any company or close corporation undergoing liquidation is considered an estate or separate entity to the Directors and Shareholders. When you provide a notice to all the parties involved in the liquidation process, SARS also receives a notification.

Your representative lawyer may prepare all the necessary documents and report your Estate case to SARS via their entry point email addresses, or by sending it through the new SARS Online Query System.

All the necessary documents are on their FAQ page.

Reduce the Hassle of Liquidation by Hiring an Expert

When liquidating a company or a close corporation in South Africa, a plethora of documentation is involved. In this article, we observed the role of SARS in the liquidation process in South Africa. As you are aware, the liquidation process is tedious and riddled with documents, dates and notices.

Related: How Long Does Liquidation Take in South Africa?

If your company must undergo liquidation, our insolvency practitioners can ensure a smooth sailing of the liquidation process. Feel free to contact us for a free assessment today.

Disclaimer: This article is intended for general informational purposes only and should not be interpreted as legal advice. Any actions taken based on the information provided are done so at your own discretion. Solvendi cannot be held liable for any outcomes resulting from such actions. We encourage you to consult with us directly before making decisions solely based on the content of this article.

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