Qualifying for the Employment Tax Incentive (ETI)
17 April 2020
As part of the COVID-19 tax relief measures provided by the Minister of Finance, the Employment Tax Incentive (ETI) for qualifying employees were increased from R 1 000 to R 1 500 for the first 12 qualifying months and from R 500 to R 1 000 to the second 12 qualifying months.
Further relief was granted in terms of the age restriction on ETIs for qualifying employees in that an ETI of R 500 is granted per qualifying employee per month, where the employees are between the ages of 30 – 65 years.
In the draft ‘Explanatory Notes On Covid-19 Tax Measures’ issued by The Ministry of Finance on 29 March 2020 additional relief of an ETI of R 500 per qualifying employee per month was also provided for the 18 – 29 year age group where the ETIs for the first 24 months have already been exhausted.
The Ministry of Finance has also accelerated the ETI refund process in that refunds can now be claimed monthly instead of bi-annually as part of the EMP501 reconciliations.
All the above ETI tax relief measures are only available to employers registered at SARS as at 1 March 2020 and is only valid for a period of four months with effect from 1 April 2020 for payments due on 7 May 2020.
Amidst all these tax relief measures implemented by The Ministry of Finance, it is also important to keep the basic requirements in mind for claiming the monthly ETI. The fact that ETIs form part of the tax relief measures does not change the requirement that an employer needs to qualify for ETI in terms of The Employment Tax Incentive Act.
In order to claim an ETI there must be an employment contract between the employer and the qualifying employee. The employer will furthermore only be able to claim the ETI credit if it is tax compliant for all tax types.
For an employer to qualify for ETI it must:
- not be a public entity
- be a registered employer (registered for PAYE)
- not form part of government or a municipality
- not be disqualified from receiving the incentive by not meeting the conditions as may be prescribed by the Minister by regulation and
- not be disqualified from receiving the incentive by the Minister of Finance due to the displacement of an employee.
A qualifying employee
- was employed on or after 1 October 2013
- is between 18 and 29 years old (except if the employer operates and the employee works inside a special economic zone) (extended to include employees between the ages 30 – 65 for periods 1 April 2020 – 31 July 2020)
- is not a domestic worker
- is not a “connected person” in relation to the employer
- has a valid South African ID, an ID issued in terms of the Refugee Act or has an Asylum Seeker permit
- is paid a wage of between R 2 000 and R 6 500 per month based on 160 hours of work per month.
- where the hours worked is more or less than 160 hours the wage earned must be either grossed up or grossed down to 160 hours.
ETIs can only be claimed for 24 months per qualifying employee, even if that employee still qualifies as a qualifying employee after the first 24 months have been exhausted.
Feel free to contact the BDO Tax team to assist you with your ETI claims.
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