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income tax

Calling All Digital Nomads!

South Africa continues to be a prime destination for remote work. Not only does our beautiful country offer a favourable climate that attracts digital nomads and those employed by foreign companies, but it also has the advantage of earning in Dollars and Pounds while spending in Rands. It’s a win-win situation for foreign firms interested in hiring talented South African professionals who are comparatively cost-effective and don’t require adherence to local tax compliance regulations. However, the National Treasury has recently suggested modifications to the Income Tax Act, which could introduce certain compliance changes for remote workers and their foreign employers.

Incoming Changes for Remote Employees with Foreign Employers

Proposed changes to the Employee’s Tax Schedule section of the Income Tax Act could significantly impact foreign employers. If enacted, these amendments would require foreign employers to register for and withhold Pay-As-You-Earn (PAYE) for the South African Revenue Service (SARS), as well as contribute to the Unemployment Insurance Fund (UIF) and Skills Development Levies. While this might seem like a minor adjustment that could broaden SARS’ tax base, the implications could be far more significant.

This new mandate could potentially impose an additional set of responsibilities on foreign employers. Specifically, they would need to:

  • Establish and manage payroll systems.
  • Register for PAYE, UIF, and SDL.
  • Set up a branch company within South Africa.
  • Obtain a SARS income tax number.
  • Adhere to the regulations set forth by the Companies and Intellectual Property Commission (CIPC).

Foreign employers might react by prematurely ending employment contracts or reconsidering South Africa as a destination for sourcing talent. This could inadvertently discourage international businesses from investing in local talent, affecting the country’s reputation as an attractive location for remote work. A decrease in remote working opportunities could exacerbate South Africa’s ongoing emigration trend, creating a potential drain of skilled professionals from the country.

The Reasoning

The rationale for these legislative changes remains somewhat ambiguous, particularly considering that most remote workers and digital nomads are likely registered as provisional taxpayers and, therefore, already contribute to SARS through income tax on their earnings.

However, the National Treasury has suggested that this amendment would create a more equitable environment between resident and non-resident employers. The current collection of provisional income tax from remote workers presents challenges due to its unpredictability and difficulty in enforcement, resulting in SARS potentially missing out on substantial tax revenue. SARS can secure a more consistent revenue stream by mandating PAYE from foreign non-resident employers.

Expert Guidance for Your Tax Journey

Although these amendments are currently open for public feedback, the likelihood of the Treasury enforcing these changes is significant. Digital nomads and remote South African workers employed by foreign non-resident companies should brace themselves for potentially challenging times as their employers grapple with these new, intricate, demanding obligations.

MMS Group is well-versed in the complexities of South African income tax. We stay updated with the latest changes and developments to ensure our clients are provided with leading tax consulting. For expert consultation on navigating potential tax implications for remote employment, contact our team.