The franchise industry in South Africa is a major contributor to the South African economy. There is a need for clarity concerning the tax implications that arise in relation to franchise arrangements, in particular, the income tax treatment of specified income received or accrued and specified expenditure incurred by franchisors and franchisees under franchise agreements.
Issue 2 of the SARS Guide on the taxation of Franchisors and Franchisees provides an overview of the tax rules applying to franchisors and franchisees under the following headings:
- General principles
- Creation or acquisition of intellectual property
- Upfront fees
- Royalty payments
- Royalties on “tainted intellectual property”
- Withholding tax on royalties
- Early cancellation of a franchise agreement
- Penalties for breach of contract
- Renewal fees
- Advertisement fees
- Training fees
- Capital gains tax
- Restraint of trade payments
A copy of the guide can be assessed
here.
