Nwanda Internal News
(February 2017)

DAYS

Awesome Rewards:
Cleaning of deep storage – Francis Venter
Taking care of M-files scanning – Chante-Liz Coetzer

Farewell to staff member:
We bid farewell to Annelize van Zyl our Office Manager, we wish her success in her future endeavours.

It’s a girl:
Congratulations to Sikhanyile Noholoza on the birth of her baby girl on the 5th of February 2017.

Growing the Nwanda Partnership :
On 1 February 2017 Nwanda admitted Peter Steyn as a Partner and Christopher Botha as a Candidate Partner.  Peter joins us with his staff compliment of 3.

Welcome one and all to the Nwanda Team!

Welcome to our Nwanda additions:
Trainee accountants

Front: Gideon Manika  Left to right middle: Dean Elson, Jennifer Neill, Shene Miller, Ghilaine Kikoba, Shaista Ebrahim, Lebohang Lemaona, Miguel Jorge, Left to right back: Mohammed Moolla, Ernestus Botha, Talita,, Roux, Matthias Krafft, Amy Anderson.

Front: Gideon Manika
Left to right middle: Dean Elson, Jennifer Neill, Shene Miller, Ghilaine Kikoba, Shaista Ebrahim, Lebohang Lemaona, Miguel Jorge,
Left to right back: Mohammed Moolla, Ernestus Botha, Talita,, Roux, Matthias Krafft, Amy Anderson.

Emergency Numbers:
Nwanda_Internal_Emergency Numbers

 

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Penalties on Underpayment of Provisional Tax

Under paragraph 20(1) of the Fourth Schedule to the Income Tax Act 58 of 1962, amended (“the Act”), if the actual taxable income of a provisional taxpayer, as finally determined under the Act, exceeds R1 000 000 and the estimate made in the return for the payment of provisional tax, that is the so-called second provisional tax payment, is less than 80% of the amount of the actual taxable income, the Commissioner is obliged to levy a penalty, which is regarded as a percentage based penalty imposed under chapter 15 of the Tax Administration Act 28 of 2011 (“TAA”).

The penalty, in the case of a company, amounts to 20% of the difference between the amount of normal tax calculated using the corporate tax rate of 28% in respect of the taxable income amounting to 80% of the actual taxable income and the amount of provisional tax in respect of that year of assessment  paid by the end of the year of assessment.

Paragraph 20(2) of the Fourth Schedule to the Act confers a discretion on the Commissioner to remit the penalty or a part thereof where he is satisfied that the estimate of taxable income was seriously calculated with due regard to the factors as having a bearing thereon and was not deliberately or negligently understated.

The Port Elizabeth Tax Court was recently required to adjudicate a matter relating to the imposition of a penalty on the underpayment of provisional tax in Case No. IT14027, as yet unreported, where judgment was delivered on 7 December 2016.

The Tax Court had to consider whether the company could lawfully amend its grounds of objection even though the matter was already on appeal ©iStock.com/ “Alert Judge
-by junial

ABC (Pty) Ltd was a provisional taxpayer which delivered its return for payment of provisional tax for the 2010 year of assessment on 30 June 2011. In its return of provisional tax it estimated the taxable income for the year of assessment and made payment in accordance with its estimate. Sometime later it appeared that the actual income received exceeded the estimate made by the company substantially. As a result the South African Revenue Service (“SARS”) imposed an underestimation penalty in terms of paragraph 20 of the Fourth Schedule to the Act.

The company lodged an objection which was rejected by SARS and resulted in an appeal which was decided in its favour by the Tax Board. SARS subsequently appealed the decision of the Tax Board to the Tax Court for a hearing de novo and subsequently filed a statement of grounds of assessment and opposing the appeal.

In reply, ABC (Pty) Ltd filed its statement of grounds of appeal according to the Tax Court rules. In its grounds of appeal the company abandoned all of the grounds raised in its original objection and in its notice of appeal and sought to rely only on the procedural ground raised for the first time by the chairperson of the Tax Board upon which he had found in favour of the company.

SARS subsequently filed a notice of exception arguing that the company could not rely on a new ground of objection not previously contained in its grounds of objection.

The company originally estimated its income for the 2011 year of assessment in an amount of R431 638,00 and made payment of provisional tax amounting to R64 905,54. Later, on 30 September 2011 the company made a further payment of R1 377 466,22. Subsequently, the company filed its income tax return reflecting a taxable income for the year of assessment amounting to R5 050 076,00.

By virtue of the large difference between the tax actually due per the final taxable income and the provisional tax paid, SARS imposed the underestimation penalty under the provisions of the Act. SARS considered the objection lodged by the company on the basis that the company did not seriously calculate its tax income as required.

The TAA had not yet come into force by the time that the company’s objection had been disallowed and its notice of appeal lodged. The Tax Board decided that the Commissioner was correct in rejecting the company’s objection and that the appeal should be dismissed on its merits.

However, the chairperson of the Tax Board mero motu raised a procedural issue under the TAA which had since come into force and decided in favour of the company. The chairperson of the Tax Board reached the view that the manner in which SARS had dealt with the imposition of the penalty was in conflict with chapter 15 of the TAA, especially sections 214 and 215 thereof.

The Tax Court had to consider whether the company could lawfully amend its grounds of objection even though the matter was already on appeal. Tax Court Rules do not provide for an amendment to the taxpayers’ grounds of objection and the Court therefor referred to the rules of the High Court.

The Tax Court considered the various provisions of the TAA and made the decision that SARS’s exception to the company’s application should be upheld and that the application for the amendment of the company’s grounds of objection should be dismissed. The Court therefore dismissed the company’s appeal and confirmed the penalty imposed on the understatement of provisional tax.

Based on the judgment it is concluded that taxpayers need to exercise extreme caution in calculating taxable income for purposes of provisional tax, failing which they will become liable to the 20% underpayment penalty.

Furthermore, when a taxpayer disputes the imposition of a penalty, or in fact any assessment, it is important that the grounds of objection are properly formulated as it is not possible to subsequently amend the grounds of objection.

Source:
Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, February 2017.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Non executive directors liable for VAT

-JOHANNESBURG

A ruling by the South African Revenue Service (SARS) that non-executive directors are required to register and charge VAT where they earn director’s fees exceeding the compulsory VAT registration threshold of R1 million during a 12-month period will likely create a significant administrative burden for non-executive directors and the companies they serve.

The ruling also raises questions about whether SARS will be able to cope with the large number of VAT registration applications that are likely to be submitted over the next three months before the ruling becomes effective.

Moreover, many listed companies – often holding companies earning mainly dividend income – are not registered for VAT and will not be able to claim a VAT deduction even though their non-executive directors will charge 14% VAT.

After a prolonged period of uncertainty about whether amounts payable to a non-executive director are subject to the deduction of employees tax, SARS issued two Binding General Rulings on the issue on Friday.

Parmi Natesan, executive at the Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA), says there has been much confusion and debate around  the issue in the past, with the IoDSA and other bodies having written to both SARS and National Treasury requesting clarity on the varying interpretation of both the Income Tax Act and the Value-Added Tax Act.

The IoDSA welcomes the fact that clarity has been provided, she says.

Gerhard Badenhorst, tax executive at ENSafrica, says SARS has previously ruled that director’s remuneration is not subject to VAT and although the rulings did not specifically refer to non-executive directors, the scenario described in the ruling was typically that of a non-executive director.

The rulings were withdrawn in 2009, but it was generally accepted that Sars still subsequently applied the principles set out in these rulings.

Badenhorst says in his experience, most companies considered non-executive directors to be employees.

“In most instances, companies purely deducted employees tax and they weren’t registered for VAT.”

The SARS ruling now explicitly states that director’s fees received by a non-executive director for services rendered on a company’s board are not subject to the deduction of employees’ tax.

“I think the administrative burden will be substantial for all parties involved and only time will tell whether the additional revenue collected by Sars will be substantial.”

Badenhorst says a further practical issue or question that has arisen is with regard to the VAT registration process.

“It is currently a difficult process to register for VAT purposes as SARS often rejects VAT registration applications  for various reasons, which causes the applicant to submit his or her application a number of times before the application is eventually accepted. The issue is whether SARS will be able to cope with the large number of VAT registration applications that are expected to be submitted over the next three months.”

While the ruling applies from June 1 2017, industry commentators differ on whether non-executive directors could face a VAT liability, penalties and interest related to prior tax periods.

Badenhorst says generally Sars would issue a binding general ruling in draft form, allowing industry to comment before a final ruling is issued, but in this case the ruling was issued in final form, and this issue would have to be clarified.

Since the ruling applies from June 1 2017 it seems that Sars may not seek to apply it retrospectively.

But Chris Eagar, attorney and director at Finvision VAT Specialists, says the ruling is not legislation and merely a confirmation of SARS’s interpretation. Therefore it doesn’t change the law.

If SARS agrees that the situation was unclear in the past, it may decide not to actively pursue the  application of the law retrospectively. However, its role is to apply the legislation as it stands. In such instance, there would be a historic liability going back five years, he says.

Non-executive directors and their employers would typically be on friendly terms and companies could decide to pay the VAT to the director retrospectively, with the employer claiming an input tax credit (if it is entitled to do so). In this way the director will not be out of pocket as far as the tax is concerned, upon payment to SARS.

But penalties and interest may still need to be paid, Eagar argues.

Under the Tax Administration Act, penalties range from 10% to 150%, but it is unlikely that SARS would impose these penalties, as the default seems to have arisen due to “bona fide inadvertent error”. The 10% late payment penalty will remain, however. Where the default constitutes a so-called “first incidence”, it is likely that SARS would waive this penalty upon application. This still leaves the potential VAT liability over the five-year period as well as the interest payable, he says.

SARS did not respond to a request for clarity on whether the ruling would be applied retrospectively by the time of publication.

Source: MoneyWeb Today

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Update to Draft Taxation Laws Amendment Bill, 2016
- section 7c

The revised Draft Taxation Laws Amendment Bill, 2016 (section 7C) has been approved by Parliament and should be promulgated soon to be effective 1 March 2017. The second draft was accepted without any major changes to it. Some additions were made to the Explanatory Memorandum issued by the South African Revenue Services (SARS).

An example of the effect of the legislation:

Interest free loan to trust: R10 million
Donation: R10 million x 8% interest at the SARS official rate= R800 000
Donations tax: (R800 000 – annual exemption R100 000) @ 20% = R140 000.

The two most likely scenarios that may apply to you, in line with this legislation are as follows:

  • You have sold an asset to the trust on an interest-free loan basis or interest rate lower than the SARS official rate;
  • The trustees of a trust made a distribution to trust beneficiaries and the beneficiaries loaned it back to the trust.

Indirect loans to trusts will be subject to section 7C. An example of this would be when you advance an amount to someone who is not a connected person to you (Y), subject thereto that Y will advance an interest-free loan to the trust and cede the claim for repayment by the trust to you as security for repayment of that loan.

Section 7C should not apply in the instance where trustees credit distributions on loan account to a beneficiary, and the payment of the loan is in the sole discretion of the trustees. The trust deed also has to allow the trustees to do so. There must be no contract of loan between the trustees and the beneficiaries for this transaction agreeing on the terms applicable to the retention of the vested amount in trust. The beneficiaries must have no say in whether or when the amount vested in them should be distributed to them (refer to page 11 of the SARS Explanatory Memorandum).

What this means for you:

If you have made a loan to a South African trust, we recommend that you evaluate your position and the impact of this legislation on you before 28 February 2017 (if any). Your specific circumstances would dictate the best tax efficient advice for you. In some cases the best solution would be for you either to pay interest on the loan, or to repay the loan, or to make loans to a company, or to restructure your trust.

In addition, we recommend a review of your trust deed to make sure that:

  • the wording is correct to give trustees an absolute discretion regarding payments to beneficiaries of vested amounts;
  • the loan amounts are checked in detail as they may fall into the exemptions provided for in the legislation; and
  • the loan agreements are not entered into for beneficiary vested amounts on credit account in trust.
  • The disclosure in the financial statements of trusts are of the utmost importance – it should clearly differentiate and disclose loans to the trust, separately from vested amounts retained in trust on credit. These should already be included in the annual financial statements of the trust for the year ending on 28 February 2017.

Please contact your Audit Partner on 011 662 0926 to make an appointment.

Alternatively, you can also contact your portfolio or wealth manager for assistance.

Source: Sanlam

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Nwanda Internal News
(January 2017)

January_NewYearBlog_Image

Awesome Rewards :

Obtained their BCompt(Acc) degrees with distinctions:

  • Hennie de Beer & Natasha Bothma

Obtained distinctions during the October/November 2016 examinations:

  • Keisha Sibiya, Rafeeah Razak, Safwaan Mansoor, Jessica Soutgate and Sean Bushe

Succesful completion of UNISA Tax Technician course

  • Fatima Wadia

Congratulations:

  • Sadiya Mansoor, successful completion of SAICA articles and promoted to Junior Manager
  • Kim Sing, promoted to HR Manager

Farewell to staff member:

We bid farewell to Sarvesh Chinappa, who started as a trainee accountant on 11 January 2010 and will leave the firm as a Junior Manager 7 years later.  We wish him success in his future endeavours.

Maternity leave:

crown

Keep calm Sikhanyile Noholoza and
enjoy your maternity leave.

 

Nwanda’s Year End Bash:

We held our Black and White year end BASH on the 2nd of December 2016.

Here with some evidence that we all enjoyed the day…

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Exchange control implications for branching out

As globalisation becomes an increasing commercial factor, a great many of our clients also find themselves branching out their operations and activities beyond the borders of South Africa, primarily into Southern Africa but often also beyond. Funding such initiatives may be a complex exercise, not only to decide on whether to finance the expansion through debt or equity financing (and actually obtaining such sources of funding), but also to get the necessary exchange control approvals in place to be authorised to enter into such offshore funding initiatives.

The Financial Surveillance Department of the South African Reserve Bank is primarily tasked with managing the South African exchange control regime. Exchange controls are in place to regulate the in- and outflows of currency in and out of South Africa. It is accordingly illegal to export South African currency without prior approvals specifically put in place. This dispensation also extends to the funding of South African businesses setting up operations offshore. It is for example impermissible for a South African entity to set up a business (either as a branch or as a separate entity) in another country without the prior approval of the Financial Surveillance Department (or one of its authorised dealers).

To apply for the requisite approvals clients should approach their relevant banks which would typically be authorised to act as an authorised dealer of the Reserve Bank. This implies that the bank itself would be authorised to approve certain applications made to it for foreign direct investments, although some transactions may require applications to be put to the Reserve Bank directly. Approvals will typically be conditional upon certain facts being illustrated by the applicant and it agreeing to observe certain requirements such as e.g. lodging financial statements annually, presenting regular progress reports to the bank, proving to satisfaction that arm’s length conditions are imposed, etc. Only once the necessary approvals are in place will entities be able to move funds to and from the Republic.

Exchange controls do not only affect South African residents, but also have a bearing on non-resident businesses expanding to South Africa. Debt funding into South Africa for example should be approved, even though it will initially lead to capital inflows into South Africa. The Reserve Bank would however want to specifically approve lending terms linked to inward debt funding initiatives to ensure that excessive amounts charged as interest do not leave the country. Similarly, equity investments into South Africa are also affected and South African subsidiaries of international corporate groups are required to have their share certificates issued endorsed “non-resident” by an authorised dealer. To the extent that non-resident companies engage in a level of activities in South Africa such that requires them to register as external companies, they should be aware thereof that external companies (to the extent that they represent a branch in South Africa) are considered to be a separate exchange control resident, despite the fact that the rest of the company may be operating outside of South Africa. The implication is that these South African branches too cannot introduce and remit cash offshore without prior approval either.

Acting in breach of exchange controls is not only illegal, but also a criminal offence.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Explaining zero rated VAT

Value-Added Tax, or VAT, is currently typically charged at 14% on all taxable supplies of goods or services rendered by registered VAT vendors. Taxable supplies exclude exempt supplies, such as providing financial services, residential accommodation or educational services (see section 12 of the Value-Added Tax Act, 89 of 1991). Where a VAT vendor makes exempt supplies, it may not levy VAT on invoices rendered for such goods or services provided to the vendor’s clients.

Taxable supplies include though the supply of goods or services at a VAT rate of zero percent. In other words, where a VAT vendor were to supply zero rated goods or services, it will levy VAT on the invoice at 0%, and not the standard rate of 14%. This may appear nonsensical at first, especially considering from an economic perspective when compared to exempt supplies: effectively no VAT is charged on an invoice whether the supply by the VAT vendor is exempt from VAT or charged at a rate of zero percent.

The significance lies therein that the exempt supplies are exempt from VAT altogether, while zero rated supplies still qualify as “taxable supplies” as defined in the VAT Act. VAT vendors may therefore claim input tax for expenditure incurred in order to render taxable supplies, even if zero rated.  This will not be the case for VAT exempt supplies.

Put simply therefore: input tax may be claimed against expenditure incurred to the extent that the expenditure is used ultimately to make either zero or standard rated supplies. To the extent that the expenditure is applied to make VAT exempt supplies, no input VAT may be claimed.

To use an example: imagine a VAT vendor, A (Pty) Ltd, which renders services to an Australian based firm (and which is zero rated in terms of section 11(2)(l) of the VAT Act). The invoice to the Australian firm amounts to R100 + VAT at zero percent (therefore R100). To render the services, A makes use of a subcontractor which invoices it an amount of R50 + VAT at 14% (therefore R57). To the extent that the services of the subcontractor is used to further the enterprise of A in making taxable supplies (even if at zero percent) to the Australian customer, A is able to claim an input tax amount of R7, thereby realising a profit of R50.

Had the services rendered by A amounted to exempt supplies for VAT purposes though in terms of section 12 of the VAT Act (such as supplying financial services for example), A would have still only invoiced its customer an amount of R100, yet unable to claim the input tax amount of R7 on the basis that subcontractor fee is no longer paid in the furtherance of A’s enterprise in making taxable supplies. In this scenario where exempt supplies are made, a profit of only R43 would have been made.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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New transfer pricing documentation requirements

The transfer pricing regime in the Income Tax Act, 58 of 1962, is regulated by section 31 of that Act. It in essence requires that cross-border transactions be entered into on an arm’s length basis where connected persons transact with one another. The obvious mischief sought to be countered is for connected persons to charge fees between one another to ensure that the party in the most tax beneficial regime is more profitable than the taxpayer in the more onerous tax jurisdiction.

Determining when a fee will be “arm’s length” will necessarily be a facts based determination to be evaluated on a case-by-case basis. For any taxpayer therefore to claim that its transactions are concluded on an arm’s length basis will have to be substantiated by relevant corroborative evidence, primary among which will be whether the prices involved are comparable to industry norms and standards coupled with a commercially defensible transfer pricing policy document setting out how pricing is determined for cross-border related party transactions entered into by the taxpayer (notably intergroup transactions).

The Commissioner for SARS has recently (28 October 2016) published a comprehensive list* of certain information and documents that taxpayers are required to maintain when they enter into cross-border activities with connected persons or branches. This includes:

  • A description of the person’s ownership structure (including details of shares or ownership interests in excess of 10 per cent held) as well as a description of all foreign connected persons with which that person is transacting and the details of the nature of the connection;
  • The name, address of the principal office, legal form and tax residence of each of the connected persons with which a cross-border transaction has been entered into by the person; and
  • The person’s business operation summary, including—
    1. a description of the business (including the type of business, details of the specific business and external market conditions) and the plans for the principal trading operations (including the business strategy);
    2. an organogram showing the title and location of the senior management team members; and
    3. major economic and legal issues affecting the profitability of the person and the industry.

There are additional requirements for transactions exceeding R 5 million. These notably include keeping on record the necessary exchange control approvals obtained for entering into the relevant transaction.

The notice replaces SARS’ previous reporting requirements contained in its Practice Note 7. The notice issued confirms what we have in recent times started experiencing in practice, being a renewed focus by SARS on transfer pricing as a means of revenue collection for the fiscus.

* See Government Gazette Vol. 616 No. 40375

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Mandatory firm audit rotation results report update

SAICA released the Mandatory audit firm rotation (MAFR) results report on 27 September 2016. It has come to our attention that there were some inconsistencies between the visuals and the report narrative.

The full results report as well as the executive summary has been amended with revised design elements to achieve visual consistency with the report narrative as well to enhance the readability of the report. The data, results, narrative and conclusions remain exactly the same and are not affected by the visual design amendments.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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How to avoid email phishing

Phishing is a technique used by scammers to steal the personal details of unsuspecting people using email. A lot of phishing emails claim to come from legitimate sources or popular websites. These emails often ask the user to enter bank details or other personal information. Sometimes they will appear to be emails claiming the receiver has won something and that they need to enter their details to claim their prize.

Most of these fake emails redirect users to website pages with spaces where they have to fill in essential financial information usually used to access bank accounts or other personal accounts. Once the scammer gets a hold of the information, they can carry out fraudulent monetary transactions. .

Follow these 10 steps to protect yourself from phishing scams:

1. Learn to Identify Suspected Phishing Emails
There are some qualities that identify an attack through an email, such as:

  • They duplicate the image of a real company.
  • Copy the name of a company or an actual employee of the company.
  • Include sites that are visually similar to a real business.
  • Promote gifts, or the loss of an existing account.

2. Check the Source of Information from Incoming Mail

Your bank will never ask you to send your passwords or personal information by mail. Never respond to these questions, and if you have the slightest doubt, call your bank directly for clarification.

3. Never Go to Your Bank’s Website by Clicking on Links Included in Emails

Always, type in the URL directly into your browser or use bookmarks/favourites if you want to go faster.

4. Enhance the Security of Your Computer

Common sense and good judgement is as vital as keeping your computer protected with a good antivirus to block this type of attack.

5. Enter Your Sensitive Data in Secure Websites Only

In order for a site to be ‘safe’, it must begin with ‘https://’ and your browser should show an icon of a closed lock.

6. Periodically Check Your Accounts

It never hurts to check your bank accounts periodically to be aware of any irregularities in your online transactions.

7. Phishing Doesn’t Only Pertain to Online Banking

Most phishing attacks are against banks, but can also use any popular website to steal personal data such as Facebook, PayPal, etc.

8. Phishing Knows All Languages

Phishing knows no boundaries, and can reach you in any language. In general, they’re poorly written or translated, so this may be another indicator that something is wrong.

9. Have the Slightest Doubt, Do Not Risk It

The best way to prevent phishing is to consistently reject any email or news that asks you to provide confidential data.

10. Check Back Frequently to Read About the Evolution of Malware

You should try keep up-to-date with the latest malware attacks, recommendations or advice to avoid any dangers on the net, etc.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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