Employment Tax Incentive and Special Economic Zones

Employment Tax Incentive and Special Economic Zones


This article looks at the practicalities of ETI as it relates to clients of HRTorQue and then looks at the practical implementation of ETI as it relates to SEZs.

A number of employers have not yet taken advantage of the Employment Tax Incentives “(ETI)” initiative on offer by SARS. There are a number of challenges and risks around activating this incentive, but if managed properly significant, real benefits can flow to the employer.

The Employment Tax Incentives (ETI) was designed to encourage employment of young individuals and is a valuable tool for employers to recover funds from the state. It has been extended a few times already and we have recently heard it has been extended further (to be confirmed).

If you are a client of HRTorQue’s and you have activated ETI you should be aware of the following:

  • If you do choose to have ETI activated, you will receive a monthly report with your test reports showing who the current calculation on your payroll. It is very important that you note that you can only claim ETI for your organisation if you are currently in good standing with SARS, in all your tax types.
  • We cannot access your current standing with SARS, this can only be done by the person that holds the efiling “Income Tax” profile. We only have access to the PAYE profile in most circumstances, so we are completely in your hands when it comes to knowing if you are in good standing.
    If you are currently NOT in good standing with SARS, you must tell your payroll team to remove the ETI from your payroll before you run live, for the current month payroll. Your payroll team will then move the ETI calculated for the current month to a “calculated but Unclaimed status” for our payroll administration team to reserve these funds with SARS via the EMP201 submission for future use, if possible, within the relevant tax seasonal time frames, (as explained on the refund document below).

It is important to note that it is extremely difficult and a significant risk to your organisation to attempt to withdraw the ETI post submission and payment to SARS. Please make note of this important issue and help us keep you safe in this regard.

Here is a link from SARS that explains how to claim, post the current period, if you are not in good standing, and the process that is followed.

The 1st August 2018 brought us more changes in this process as SARS finally gazetted the Special Economic Zones for ETI.

Designated Special Economic Zones and ETI Act

On 6 July 2018, the Minister of Finance published Gazette No 41759 designating six Special Economic Zones (SEZ’s) for the purposes of section 6 (ii) of the employment Tax Incentive Act, No-26 of 2013 (the ETI Act).

With effect from 1st August 2018 and for the purpose of the ETI act the 6 designated zones are:
1. Coega (PE AREA)
2. Dube Transport (KZN)
3. Industrial Development Zone (East London)
4. Maluti-a-Phofung (Bethlehem area)
5. Richards Bay (KZN)
6. Saldanha Bay (Western Cape)

Boundaries and other details of these SEZ’s can be found in Gazette number 41758.

One of the criteria that must be satisfied before an employee can qualify to generate an employment tax incentive for the employer is that the employee must be not less than 18 years old and not more than 29 years old at the end of the claiming month.

However, section 6(a) (ii) of the Employment Tax Incentive Act provides as follows: “6. Qualifying employees. – An employee is a qualifying employee if the employee –

(a) (ii) is employed by an employer operating through a fixed place of business located within a special economic zone designated by notice by the Minister of Finance in the Gazette and that employee renders services to that employer mainly within that special economic zone; or”

The age requirement for ETI therefore does not apply where:

  1. The employee provides services mainly to an employer in a designated SEZ, and
  2. The employer operates through a fixed place of business located within that SEZ.

Fixed Place of Business

The six SEZ’s designated by the Minister of Finance have clearly defined boundaries, to comply with the first requirement, the employer must operate through a fixed place of business located within the defined boundaries of the SEZ.

If the employer has branch offices, the employer satisfies the first requirement if one or more of the branch offices operate through a fixed place of business within one or more of the six designated SEZ’s. A branch office is not a separate legal entity from the business under which it operates, therefore it is irrelevant whether the branch office or the business is regarded as the employer for purposes of section 6 (a) (ii), as both form part of one legal entity.

Note that an employee’s residential home will not constitute a fixed place of business for the purpose of section 6(a) (ii) of the ETI Act.

Rendering of Services Mainly within an SEZ

The word “mainly” in the income Tax Act means ‘more than 50%’, and this principle is applied to section 6 (a) (ii) of the ETI Act. This would be measured per month (ETI is administered on a monthly basis). Secondly, the employee must render more that 50% of his or her services per month physically within a designated SEZ where the employer has a fixed place of business (as discussed above).

Application of the Section 6(a) (ii) Requirements

In practical terms, the following three criteria must be met by an eligible employer in order to satisfy the requirements of section 6(a) (ii):

  1. The employer must operate through a fixed place of business, and
  2. The fixed place of business must fall within a designated SEZ, and
  3. The employee must render services to the employer mainly with that SEZ

The result is that the ETI claimed under section 6(a) (ii) is ultimately ‘ring fenced’ to the employees rendering services mainly within that designated SEZ.

The same principles apply if the branch office is registered separately for PAYE from the business.

Tax Certificate Codes for SEZ’s

While the Government Gazette that designated the six SEZ’s was published on 6 July 2018, the effective date is 1 August 2018. Employees who qualify in terms of section 6(a)(ii) in the month of August 2018 must be reported on tax certificate for the August 2018 mid-year tax certificate submissions.

What do you do if you want to claim ETI?

HRTorQue has considerable experience in managing ETI calculations and applications. We are experts at reducing client stress by managing these types of administrative tasks on their behalf.

For the maximum benefit in relation to claiming ETI, we recommend contacting your payroll team leader who will guide you through the process.