I recently have done a lot of research of your income tax implications for network marketing companies trading in South Africa.Some background before we discuss the income tax risks to look out for.
The clients of network marketing businesses consist out of various business owners or product users, with the specific networking marketing company merely collecting the various sales and product sales and pay this over to the owner of this network of clients.
Unfortunately, this create the fact that the business owner receives more than 80% of its income from one source (The network marketing company)
There are two different income tax laws applicable to you, depending on how you trade (in what entity)
1. Individual / Sole Proprietor
- You trade and receive the income from the network marketing business in your personal capacity.
- You will be seen by SARS as an independent contractor (which are also specifically normally stated by the network marketing business agreement as such)
- Trading as a sole proprietor will be seen by SARS as an independent trade and all relevant deduction can be done.
2. Company or Trust
- You trade and receive the income from the network marketing business in a company or a Trust.
- You will be seen by SARS as an Personal Services Provider (PSP) (even though your agreement with your network marketing business clearly states that you are independent)
- You do fall in the category of “more than 80% of your income” and will be seen by SARS as a PSP with no deductions.
My opinion and potential solution for PSP:
- Even though your income does not really derive from the network marketing company itself (but from your network of individuals) and with the network marketing company merely the collector of the money of the various people in your network, technically you receive 1 payment from 1 company.
- Obviously trading in your personal capacity will expose your personal estate to all potential risks.
- Feel free to contact me with a potential solution to the PSP problem.