Trade Secrets: What’s the fun in keeping a secret… ask your lawyer what will happen if you don’t

Trade Secrets: What’s the fun in keeping a secret… ask your lawyer what will happen if you don’t

Benjamin Franklin professed that “three may keep a secret, if two of them are dead”. The same principle bodes well for trade secrets.

Do you have any idea of the practical lengths that Coca Cola goes to in order to keep its recipe for its coca cola beverage secret? For starters, the recipe is locked up in a vault, which can only be opened by a hierarchy of company resolutions and only two individuals at one time may know the actual recipe of the unmistakable flavour combination, who may never board a flight at the same time and whose identity is never made known. Although it sounds absurd, it makes absolute sense once we consider the significant value of trade secrets, as well as the brittle nature thereof.

A trade secret is seen as an asset, which falls under the umbrella of intellectual property. However, there is no distinct body of law that regulates this form of intellectual property and instead, it is enforced by means of unfair competition law, contract law and criminal law. This nomad nature of trade secrets makes it a high risk, high reward asset. The benefit in retaining the secret means infinite and unfettered use, however the concept does not prohibit a third party from unravelling the trade secret, reverse engineering it or stumbling upon it through honest means. Unlike patents, where the proprietor has an absolute right to prevent a copycat, even if the copycat stumbles on it or reverse engineers a product, a trade secret is fair game to those willing to crack the code, provided that the trade secret has not been acquired by deceptive measures.

A violation of a trade secret will be present where a competitor has been shown to have misappropriated a trade secret, that there has been a misuse of the information obtained and that the trade secret proprietor had taken all reasonable steps to maintain the secrecy of the information.

So far trade secrets seem like a viable strategy, especially seeing that it could relate to almost any information, such as source code, formulas, marketing and sales strategies, proprietary recipes, technical drawings, business plans and test data, to mention a few, however a trade secret must meet three universal requirements in order to be protectable:

  • the information must not be known in the general business circles to which it relates , or the general public for that matter;
  • the confidentiality of the relevant information must represent an economic benefit; and
  • the information must be subject to reasonable efforts made to maintain its secrecy.

In order to show that reasonable efforts have been made to maintain secrecy, consider introducing certain checks and balances to ensure that there are proactive steps being taken in this regard. Internally, you should be considering appropriate document marking and management, ensuring that employment and partnership agreements create confidentiality obligations and that your company follows clean desk and secured system policies. When dealing with external third parties, your efforts should extend a little further. Aim to include confidentiality notices on important documents which record trade secrets or confidential information, conclude non-disclosure agreements (where necessary) and confidentiality agreements with relevant parties who may have access to such information and ensure that all agreements make sufficient provision for confidentiality obligations.

Lastly, consider clear definitions in all agreements as to what is included as confidential information and ensure that each agreement provides for protective obligations as it relates to confidential information.

Trade secrets are high risk, high reward, especially seeing that the lifespan of a trade secret is as long as you can keep it out of the public, unlike patents or copyright, which offer a limited protection lifespan. In order to ensure successful retention of trade secrets, it will be important to take stock of internal and external processes used by you to protect confidential information and to include appropriate checks and balances, where necessary. As can be seen, it’s not that easy to protect a trade secret, but when it works the benefits truly outweigh the effort. If you don’t believe me, try finding the recipe for coca cola.

Wonder no more – POPI commencement announced for 1 July 2020

Wonder no more – POPI commencement announced for 1 July 2020

The long wait is over. The Protection of Personal Information Act (“POPI”), promulgated in 2013 and of which certain sections became effective in 2014 has now, just north of 6 years later, been given the go-ahead for the commencement of the majority of sections. As POPI was published in its entirety all those years ago, businesses had ample time to start testing out their information protection frameworks and getting them streamlined for the day on which POPI would finally commence.

The commencement date has been speculated on for quite some time, however official communication from the President’s office, and its publication in the Government Gazette, on the 22nd of June 2020 has now dispensed with the need for further speculations:

Sections 2 – 38; sections 55 – 109, section 111; and section 114(1)-(3) will commence on the 1st of July 2020.

If you have waited with your compliance project; or if your business has been complying with POPI requirements for quite some time now, but would need to tweak a few processes, you need to act fast. These sections commence from the 1st of July 2020 but note that section 114(1) effectively provides for a one-year compliance streamlining period.

Accordingly, although the commencement date is less than a month away, a 12 month “implementation period” to get ready for compliance will apply.

Finally, section 110 and section 114(4)’s commencement date has been announced as 30 June 2021. This allows time for processes to be put in place for the Information Regulator to hit the ground running once compliance with POPI is expected from entities.

If you need any assistance in getting your business’ POPI obligations in line with the legislative requirements, feel free to let us know – our team is ready to assist you.

FINANCIAL SECTOR COMPLIANCE: Providing financial services to a changing world (Part 1)

FINANCIAL SECTOR COMPLIANCE: Providing financial services to a changing world (Part 1)

– Part 1 –

Stating that technologic advancements are both directly and indirectly shaping the course of history may sound a bit melodramatic – but simultaneously hard to argue with. Following up this proclamation with averring industry specific foundational shifts, such as the emergence of fintech bringing about a dedicated intergovernmental working group to regulate and foster responsible innovation will seem less exaggerated but equally indisputable.

The Intergovernmental Fintech Working Group (IFWG) has been around since 2016, ensuring that financial services providers (FSPs) are given a bit of oversight in a fintech context – by the corps d’elite of the financial regulatory sphere.

The IFWG, comprised of the Financial Intelligence Centre (FIC), Financial Sector Conduct Authority (FSCA), the South African Reserve Bank (SARB), the National Credit Regulator (NCR), the South African Revenue Services (SARS) and the National Treasury, monitors such innovations in order to help ensure the continued efficient functioning of financial markets, financial stability and protecting consumers’ interests.

In 2019, the IFWG hosted various workshops, with themes such as artificial intelligence, central bank issued digital currencies, cybersecurity and digital identity. With the promise of an inter-regulator innovation hub being implemented during the first half of 2020, the technological developments in the financial environment seems to be on an exponential growth trajectory in strict adherence to Kurzweil’s The Law of Accelerating Returns.

Whether one considers the financial services industry, the broader financial sector or any other related topic, the fact that our world is being rocked by technology, with its effects spilling into all industries of commerce, becomes inescapable. Consequently, it is the responsibility of policymakers to try and re-orientate the economy with gyroscopic accuracy; and the responsibility for financial services providers to test these corrective measures by seizing the opportunities these technological advancements offer. This results in the checked growth of the financial sector through product innovation. Sandboxing financial products serves as a great example. It’s the stuff love stories are made of.

“This Financial Sector Compliance Series of articles will endeavour to make new territory seem eerily familiar…”

If you’re not currently contemplating the beta-testing of AI supported financial advice or lobbying Bitcoin 2.0 to the SARB, you may be wondering if any of this is applicable to a more “traditional” FSP business model.

The short answer is yes, and the answer to the foreseeable “Why?” is a simple matter of cause and effect. Up to this point, only changes ensuing from technological developments were considered, but the need for sectoral adjustments can be brought about through a barrage of other factors and events. Economic crises, such as the 2008 financial crisis prompting South Africa’s adoption of the twin peaks regulatory model, serve as stark reminders that our regulatory systems have been put to the test and have buckled to some degree. But these weaknesses serve to highlight focus areas for the next round of regulatory adjustments, possibly bringing about changes to processes already ingrained into your business. Cause and effect.

Such changes encompass both specific prescriptions and general tenets as to what is expected from financial services providers, and can provide for consolidating the regulatory ambit of the financial services industry by expanding the definition of financial products (for example, the provision of credit – which in turn leads to other considerations such as these we wrote about previously). These are not small-scale changes and can with no exaggeration be termed as “fundamental financial sector reform” – no hyperbole intended.

Although this should be taken with the necessary accompanying seriousness and may seem daunting regardless of your level of preparedness, the underlying rationale for this reform should serve to (at least attempt to) ease some concern. At its centre is financial stability and market conduct. Each repeal, amendment or enactment associated with this reorganisation in some way serves to promote these Twin Peak objectives.

Keeping the bigger picture in mind will hopefully assist in not brooding too much over whether your disclosure obligations originate from FAIS or COFI, as well as explain why there’s now an Insurance Act in addition to the Short-Term Insurance and Long-Term Insurance Acts.

Questions may yet abound – and quite understandably so. This Financial Sector Compliance Series of articles will endeavour to make new territory seem eerily familiar by covering existing standard compliance obligations of FSPs, such as information disclosures in terms of FAIS’s General Code of Conduct; explore what changes can be expected; and how the world of financial regulation might continue to evolve.

We are currently finding ourselves amidst another global crises: not one brought about in any similar way as the 2008 financial crises forming the foundation of various countries’ Twin Peaks reform, but one borne from something much closer to home. Our health and the human life it supports is not only tied to the continued functioning of the economy, but to society and every other aspect of life as we know it. You will be hard-pressed to find a facet of society that has not been directly impacted by COVID-19. We have seen economic loss willingly undertaken by governments around the world in an effort to protect its citizens. This crisis will likely be the centre of similar debates that did the rounds after the 2008 financial crises, but with a very real human element at the heart of it.

If you have any financial sector legislative compliance queries – please contact us for more information.

eCommerce under lockdown explained

eCommerce under lockdown explained

From the commencement of the national lockdown, no meaningful distinction was made between online shopping and physical retailers in terms of purchasing options. If you couldn’t buy a new pair of headphones from your local mall to thoroughly enjoy the morning exercise window to the fullest, you wouldn’t have had the option to get access to your jogging tunes via online sales either.

Retailers were prohibited from selling goods under Alert Level 4 unless such goods qualified as permitted goods.  A list of such permitted goods is laid out in section E of Table 1 of the Regulations published on 29 April 2020, prescribing what may and may not be sold under Alert Level 4. However, this list is still fairly limited with various goods still not being available for sale to the general public.

Since the middle of May however, this position has changed. Drastically.

Directions allowing for e-Commerce sales during Alert Level 4 of the COVID-19 National State of Disaster were published on 14 May 2020. Loosely speaking these Directions allow for the sale of all goods through e-Commerce channels (with the exception of the sale of liquor and cigarettes).

So, what does this mean for your business?

Except for liquor and cigarettes, even if you were not allowed to trade under Level 4, you may now commence trade of all products if you can operate under the e-Commerce Directions.

Changing your business model to an e-Commerce business may not be something you anticipated as a short term goal. But with these e-Commerce Directions offering you lemons, it might just be the right time to recalibrate those short term goals and make lemonade (and then sell that lemonade online).

In essence it comes down to the following:
  • You need an e-Commerce process to sell your goods; and
  • You need to get your good delivered.

It is important to note that delivery does not necessarily mean appointing a courier – delivery may also mean that your employees deliver goods to local customers.

We are fully geared to assist clients with the set up of a legitimate e-Commerce process complying with the Directions. This includes advice on the process to be followed to qualify as an “e-Commerce process” under the new Directions and preparing the necessary terms and conditions and contracts with customers and third party service providers. Furthermore, we also assist with advice on the internal requirements to operate safely and in compliance with the Directions as it is of paramount importance that your internal policies ensure compliance at all times.

Contact us if you need to get ready for e-Commerce under lockdown!

Limiting directors’ authority by reserving matters for shareholders’ decision

Limiting directors’ authority by reserving matters for shareholders’ decision

The concept of control in terms of the Companies Act

As a board member you may often be uncertain as to which decisions can be taken by the board without shareholder involvement and which matters can only be dealt with by shareholders. This is especially important if some shareholders in a company are not serving on the board.

Section 66(1) of the Companies Act 71 of 2008 (as amended) (“the Act“) provides that the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Act or the Memorandum of Incorporation of the company (“MOI“) provides otherwise.

This section places a positive obligation on the board of directors, collectively, to manage and control the company’s affairs. However, such authority is not without limit as the Act limits, restricts, and qualifies the authority of the board in various sections. In addition, the Act also provides that the MOI can further limit the authority of the board to perform acts on behalf of a company.

How to restrict directors’ authority

The Act does not provide guidelines in terms of the MOI can limit the authority of the board. Usually, our recommendation is to avoid wide and over-reaching restrictions on the authority of the board to perform acts on behalf of a company. Over-reaching restrictions may interfere with the boards’ primary mandate in terms of section 66 (1) of the Act, that is to manage and control the company’s affairs, if the approval framework is not alive to the need to sometimes make decisions regarding the operations of the company on an urgent basis.

One example in which the shareholders may agree to limit the authority of the board, is against concluding any transaction on behalf of the company above a monetary threshold. Before the board can conclude and implement any transaction above such monetary threshold, shareholders will be entitled to first deliberate and approve such matter at shareholder level.

The effects of reserved matters

Reserving matters for shareholder approval delays the decision-making process, which is sensible when it comes to major transactions that will materially impact the shareholders’ long-term interest in the company, but it can also mean that the board is frustrated in its purpose if the reserved matters are over-reaching.

It is important to remember that a shareholder can always vote thinking only of its own best interest, whereas the board of directors always need to apply their discretion in the best interest of the company. It is important, therefore, to use this as a guiding principle when determining which matters are to be decided on board or shareholder level.

Directors’ go-ahead with shareholder ratification  

This brings us a crucial question of what happens if the board needs to decide quickly if there is a time‑sensitive commercial activity? Also, what happens if the board is of the opinion that a pipeline transaction, being a reserved matter, is likely to increase the company’s revenue but the shareholders are at loggerheads? Can the board authorise that transaction without the shareholders’ approval?

Section 20 (2) of the Act provides that if a MOI limits the authority of the board to perform an act on behalf of the company, the shareholders, by special resolution, may ratify any action by the company or board that is inconsistent with any such limitation, subject to such ratification not being in contravention with the Act. Therefore, the board can go ahead with the reserved matter transaction without shareholders’ approval and only when the latter deems the transaction favourable, at a later stage, can they ratify by special resolution the transaction authorised improperly by the board.

Directors’ go-ahead without shareholder ratification 

However, remember that the ratification by shareholders is not a certainty, so the board should be very careful not to bind the company unconditionally to transactions that require shareholder approval. What happens if the shareholders resolve not to ratify a reserved matter transaction after it has already been concluded and currently under implementation? Will such transaction concluded by the board outside of the ambit of their authority be valid, voidable or void and unenforceable?

The answer to this question depends on the third party’s knowledge about the existing restrictions against the board to conclude a reserved matter transaction without shareholders’ approval. Under section 20 (7) of the Act, the common law Turquand rule has been codified. This rule provides that a person dealing with a company in good faith, other than a director, prescribed officer or shareholder of such company, is entitled to presume that a company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural requirements. These requirements are in light of the Act, its MOI and any rules of the company unless, in the circumstances, the person knew or reasonably ought to have known of any failure by the company (represented by the board) to comply with any such requirement. The application of this provision must always be read in line with the common law position.

A significant factor in terms of this section is the fact that the third party must be dealing with the company in good faith. This means that any person who would have reasonably known that the board did not have authority to act on behalf of a company in a reserved matter transaction, such as the company’s director, prescribed officer or shareholder (also acting in a third party capacity), amongst others, would not succeed if attempting to enforce or uphold such reserved matter against the company.

Shareholders’ recourse against directors

If the court, upon an application by an interested person, upholds a restricted transaction against the company without the shareholders’ ratification, shareholders will remain entitled to recourse against the board. Section 20 (6) of the Act provides shareholders with a claim for damages against any person who intentionally, fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act or with a limitation imposed by the MOI.


It is therefore important not to impose restrictions on the board’s authority in a manner that may hamper operational decision-making. If this is done without careful consideration the company may be restricted from moving to make key commercial decisions quickly and the board may expose itself if it takes the gamble to conclude transactions outside the scope of its authority.

Keeping your business afloat in the time of COVID-19 – tax and other considerations

Keeping your business afloat in the time of COVID-19 – tax and other considerations


The devastating impact of COVID-19 is being felt across all sectors of the economy in one way or another. Coming out of the hard lockdown, the South African government is taking a risk-adjusted approach, which seeks to balance between the continued need to limit the spread of the virus and the need to reinvigorate the economy.

According to the South African Reserve Bank, South Africa’s economy may contract by between 2% and 4% this year as a result of the pandemic. This figure ultimately depends on certain policy responses, for example whether the National Treasury will continue to commit more spending in line with its fiscal policy and how the private sector will respond.

To this end, government has promised a massive social relief and economic support package of up to R500 billion which amounts to around 10% of South Africa’s GDP, to mitigate against the blow of COVID-19 in our country. Government support towards businesses in this regard, forms part of the country’s three phase economic response to

(1) stabilise the economy;

(2) address the extreme decline in supply and demand and protect jobs; and

(3) to jumpstart the recovery of the economy as the country emerges from this pandemic.

So, let us examine what these measures are in a nutshell:


Certain legislative amendments will be required to implement the tax relief measures which were proposed by the government around late March. These come in the form of the Draft Disaster Management Tax Relief Bill, 2020 and the Disaster Management Tax Relief Administration Bill, 2020.

Some of the proposed relief measures apply only to small and medium sized enterprises or SMEs (for example the deferral of Pay-As-You-Earn or PAYE), while others apply to all taxpayers (for example the Employment Tax Incentive or ETI). The various tax relief measures are summarised immediately below:

  1. PAYE:

Tax compliant businesses with a turnover of less than R 50 000 000 will be allowed to delay 20% of their PAYE liabilities over the next four months (started 1 April 2020 and ending on 31 July 2020).

  1. Deferral of payment of provisional tax:

Deferral of a portion of the payment of the first and second provisional tax liability to the South African Revenue Service (SARS), without SARS imposing administrative penalties and interest for over the next six months.

The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% (rather than 50%) of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65% (rather than 100%) of the estimated total tax liability.

Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.

  1. Expansion of the Employment Tax Incentive (ETI):

The ETI programme was introduced in 2014 as an incentive aimed at reducing unemployment (particularly among the youth) by encouraging employers to hire young work seekers. The impact of COVID-19 on employment during this period may be far-reaching as the majority of the South African workforce is forced to stay at home.

In order to minimise the loss of jobs during this period and beyond, government proposes expanding the ETI programme for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020 as follows:

  • Increasing the maximum amount of ETI claimable during this four month period for employees eligible under the current ETI Act from R1 000 to R1 500 in the first qualifying twelve months and from R500 to R1 000 in the second qualifying 12 months.
  • Allowing a monthly ETI claim in the amount of R500 during this four month period for employees from the ages of (1) 18 to 29 who are no longer eligible for the ETI as a result of the employer having already claimed ETI in respect of those employees for 24 months; and (2) 30 to 65 who are not eligible for the ETI due to their age.
  • Accelerating the payment of ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.

This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020. An employer is not eligible to claim the ETI if the employer is not compliant in respect of its tax obligations i.e. if the employer has any outstanding tax returns or an outstanding tax debt.  Furthermore, the current compliance requirements for employers under sections 8 and 10(4) of the ETI Act will continue to apply.

  1. The Unemployment Insurance Fund (UIF):

The government is exploring the temporary reduction or setting aside of employer and employee contributions to the Unemployment Insurance Fund (UIF) and to the Commissioner for Compensation for Occupational Injuries and Disease Fund (COIDA contributions). It is speculated that UIF obligations will be set aside for at least four months.

  1. Donations tax:

Donations tax is payable by tax residents of South Africa as follows:

  • a donations tax rate of 20% applies in relation to the donations not exceeding R30 million per year; and
  • a donations tax rate of 25% applies in relation to the donations exceeding R30 million per year.

During this period, any donation to registered public benefit organisations as well as the SOLIDARITY Fund shall be tax deductible.

Taxpayers would generally only be able to benefit from the tax stimuli if they are compliant. As a result, taxpayers would need to ensure that their tax affairs are up to date, in respect of all taxes. The Finance Minister is expected to flesh out further details on the tax-related announcements when he tables the adjusted budget at the time of writing this so additional tax relief measures are anticipated.


A new directive under the Disaster Management Regulations now offers relief to employers and employees who have been affected during the lockdown in the form of a COVID-19 Temporary Employee / Employer Relief Scheme (TERS). All employers and employees who contribute to the UIF had the opportunity to claim if they filled out an application before 30 April 2020.

The calculation of the benefit is based on the last payment made to the employee but capped at the maximum of R6 638.40. The benefit amount is then determined in line with the current sliding scale which ranges between 38% to 60% in terms of a formula. Please refer to the directives issued by the Department of Labour for more information and how the formula works.

We hope you found this article informative and wish you all the best during this period.

Disaster Management Tax Relief is coming!

Disaster Management Tax Relief is coming!

Public comments for the Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill are now open. These two tax relief bills, aimed at combating the negative economic effects the spread of COVID-19 holds, were published on 1 April 2020 for public comment. These bills include provision for –

  • Amendments to the Employment Tax Incentive Act by expanding the employment tax incentive age eligibility criteria, as well as the amounts that can be claimed and changing the payment of employer tax incentive reimbursements from occurring twice a year to occurring on a monthly basis;
  • COVID-19 disaster relief trusts to be set up: Donations to these trusts are to fall within the ambit of section 18A of the Income tax Act and the provisions relating to how amounts received from these trusts should be treated; and
  • Deferrals for employees’ tax and provisional tax for certain businesses.

Aptly named, these tax relief bills aim at employing measures that include assistance to over 4 million workers and 75 000 small and medium term enterprises.

You can access these bills and the explanatory memorandum for a more thorough read at the following links:

Public comments are open until the 15th of April 2020 and can be submitted to

If you require any assistance in making such a submission, please feel free to get in contact with us. As you may be aware, we have already started providing our legal services from home  prior to the national lockdown in an effort to help flatten the curve. Our office number is being forwarded to our executive assistant, who will happily place you in contact with the relevant practitioner – or you can email your queries directly to us at

My lease agreement and COVID-19 – what’s the legal position?

My lease agreement and COVID-19 – what’s the legal position?

During the lockdown, tenants may not be able to access and use their lease premises. Where does that leave you legally? Different scenarios may apply – your lease agreement may not have a force majeure clause, or the force majeure mechanism may seem not to apply squarely in these circumstances.

Broadly speaking we believe the same principle applies as for most commercial lease agreements during the lock down period if there is no force majeure clause or if the clause does not specifically include a pandemic: if a tenant is denied access to the premises by a supervening event that occurred after the start of the rental arrangement, and it isn’t their fault (assuming the supervening event was not self-created, foreseen or consented to by either party), then they can claim that both tenant and landlord have been hit by the supervening event, and are therefore entitled to suspend payment of rental for the duration of the supervening event. If the lockdown continued for a significant period, termination of the lease may even be an option.

An interesting case which supports this position, is Peters Flamman and Co Appellants v Kokstad Municipality Respondents 1919 AD 427, which involved a company which entered into an agreement with the Municipality to light its streetlamps (which in those days were gas).

The contract was intended to endure for a period of 20 years, however after approximately 10 years World War I broke out. The company was run by a group of people who were considered enemies of the state and were required to work in prisoner of war camps, at which point the company was handed over to and wound up by the state.

The Judge held that, owing to the supervening circumstances, the performance under the contract was objectively impossible (casus fortuitus), and that the contract should therefore be terminated. The company’s failure to perform was excused, as no-one in those circumstances would be able to perform the contract and the impossibility is not due to the company’s fault.

The relevance of this case to the current situation is the fact that during the lockdown, neither tenant nor landlord are in a position to perform on their obligations under the rental contract due to the supervening impossibility created by the lockdown regulations.

Further case law which supports the fact that if a tenant is disturbed in the use or enjoyment of the property let by a superior force (i.e. a legislated lockdown) over which the parties have no control, the tenant is entitled to a pro-rata remission of rent. Put differently, if the landlord’s obligation to protect the tenant’s use and enjoyment of the property let becomes impossible to perform due to a superior force, the tenant’s reciprocal obligation to pay the rent is also extinguished or reduced proportionally. The case confirming this position is Baylee v Harwood [1954] 3 SA 459 (A).

Both of the above cases support the tenant’s position to withhold or reduce the amount owed under the lease agreement for the period of the legislated lockdown and tenants would need to argue that the above-mentioned principles should trump any conflicting clauses in the agreement.

On the other hand, where the lease agreement directly envisages an unforeseen event such as a pandemic or act of God in a classic force majeure clause, which would likely include a legislated lockdown to combat a widespread virus, then the case may be different. The landlord would on a balance of probabilities be in a good position to argue that the short and temporary nature of the lockdown is not significant enough to override the abovementioned principles. Landlords could further argue that tenants should not be allowed to disrupt the contractual certainty relied on by commercial landlords across the nation and that in the greater scheme of things, landlord’s remain capable of delivering access to the premises, and the contract should therefore remain valid in all respects.

On balance, if these arguments were made, depending on the length of the lockdown, the amount in question would soon be dwarfed by legal fees, notwithstanding the fact that the outcome will be completely reserved for our courts. It’s therefore important to recognise that you’re not alone in this crisis and the effects of the Covid-19 pandemic are far reaching and do not discriminate between landlords and tenants. Be conscious of the fact that you are not in this predicament by the hand of your landlord, and accordingly, in your pursuit of a remedy to address your situation, whether you are a landlord or a tenant, be sure to consider the other side of the coin. Failure to do so now could result in more costly and drawn out consequences later.

Any solution should be planned with the necessary foresight that will enable you to continue in your contractual relationship amicably once the lockdown is lifted and life returns to some sense of normality.

Whether you are the landlord or the tenant, rather be proactive and put yourself in a position that will enable you to make a commercial decision which will create long term value for your organisation rather than making a hasty decision which will result in a win-lose situation.

Dommisse Attorneys helping to flatten the curve

Dommisse Attorneys helping to flatten the curve

Levels of concern around COVID-19 have certainly ramped up in the last week, and as many of you are aware, on 15 March 2020 President Cyril Ramaphosa declared the spread of the virus a “national disaster” in terms of the Disaster Management Act 57 of 2002.

This Act governs the regulatory effects of a national disaster and allows for extra measures to be taken in addition to existing legislation and contingency arrangements where special circumstances warrant it.  Interestingly, in terms of the Act any national state of disaster automatically lapses three months after it has been declared but can be terminated earlier or extended by a notice in the Government Gazette.

What measures are Dommisse Attorneys taking during this time?

  • Our team will be working from home for the foreseeable future
  • We will limit face to face meetings and meet through online channels only, unless absolutely impossible for a client
  • You will be able to contact us on our numbers and email as usual
  • If you call the office number it will be forwarded to our friendly assistant Gerry who will get the relevant attorney to return your call
  • We will continue “business as usual” as far as possible!

Why do we do this?

  • Although we have not been affected directly – meaning that none of our team has shown any symptoms or tested positive for the Coronavirus – we want to be pro-active in support of the national approach to do whatever we can to limit the virus from spreading as much as possible.
  • We also do this, because we can! As a law firm that embraces technology and the advantages it offers, we are able to do this without too much of a direct effect – except of course that we will miss the face time with fellow team members and clients!

All the best to all our clients during this challenging time. And remember that we are continuing business as usual – remotely!

Taxation in South Africa: Does it even matter where my company is registered?

Taxation in South Africa: Does it even matter where my company is registered?

“I don’t want to pay tax in South Africa. I have therefore registered a company in Delaware (or the UK or Mauritius or wherever). So I won’t pay tax in South Africa, right?”


Clients have asked us this question so many times. And strangely enough, they come to us for advice, but once we have listened to the story and conclude that the company will indeed pay tax in South Africa, it is as if they simply cannot believe it.

A lot has been written on the taxation of offshore registered companies in South Africa. The so called Place of Effective Management of a company, or POEM principle, is nothing new. And yet, there is a common misunderstanding around what it actually means practically.

Let’s start with the basics on taxation in South Africa. South Africa applies a residency tax regime, meaning that if you are a South African (tax) resident, SARS can tax you in South Africa.

When will a company be (tax) resident in South Africa? A company will be tax resident in South Africa in one of two scenarios:

  1. It is incorporated in South Africa (your typical (Pty) Ltd incorporated through CIPC); or
  2. It has its POEM (place of effective management) in South Africa.

It is the second scenario that is causing the headache for so many clients.

Let’s unpack the principle in a bit more detail. A company registered in an offshore country can still be taxed in South Africa, if its POEM is in fact in South Africa. From a SARS point of view it therefore does not matter that your company is registered in Delaware, the UK, Mauritius, or wherever. If the POEM is South Africa, SARS can tax. Note, however, that the offshore country may also be able to tax, and this is where Double Taxation Agreements become relevant, but more on this topic in a later article.

It is also important to understand that the foreign incorporated company bears the onus to prove where the POEM is, meaning that if your company wants to claim POEM in a foreign country, the company must prove this on the facts of the matter.

Now for the big question: when will the POEM be considered South Africa?

As is often the case with tax, the answer is not always clearcut. For starters, our Income Tax Act does not define what POEM means. And in terms of local case law, there is little available to guide us through this.

SARS has published what is called an Interpretation Note to explain how SARS sees the position.

The following considerations are relevant from the available international and local case law:

  • Operating a bank account in the foreign country in the name of the company is not necessarily enough to establish POEM in that country
  • What is meant by effective, is “realistic, positive management” (in the foreign country)
  • POEM is “where the shots are called”
  • POEM is where the “real top level management” takes place
  • There is a difference between key management decisions and day-to-day management decisions. It is the place where the key management decisions are taken, that will indicate the POEM

Modern day technology and operations add to the complexity around determining the POEM of a company. Various factors need to be considered in order to decide whether it is likely for your company to have its POEM recognised in the offshore country or not.

The bottom line remains – incorporating offshore is not enough to establish tax residency in the offshore country.