Foreign Employer PAYE Obligations
In the Draft Tax Administration Laws Amendment Bill released in July 2023, the Treasury aimed to equalise resident and non-resident employers. This draft introduced the necessity for foreign employers to register as employers in South Africa and withhold PAYE when hiring South African tax residents. However, this proposal faced significant criticism.
The mandate for all employers, irrespective of residency status, to deduct Pay As You Earn (PAYE) tax has been criticised as unfeasible and unmanageable. In acknowledgement of these concerns, The National Treasury has modified the language of the requirements to mandate only those foreign employers who operate a business through a permanent establishment in South Africa to withhold Pay-As-You-Earn (PAYE) tax. As a consequence of this clarification, only employers with business activity or a physical presence in South Africa are now required to withhold PAYE.
Understanding The National Treasury’s Modification
It has been observed that SARS lacks jurisdiction over overseas employers, particularly those with no business activity or physical presence in South Africa. This limitation challenged the enforcement of the proposed amendment. Under the initial amendment wording, non-resident employers would have been obligated to register as an employer and account for payroll taxes on remuneration paid to employees residing and working in South Africa. This would also apply to South African tax residents living and working abroad.
The Treasury acknowledged this issue and modified the proposal to exempt non-resident employers without any business activity or presence in South Africa from withholding employee tax.
The current provisional tax system is designed so that South African-based employees are still responsible for paying their taxes, even when there is no representative employer in the country. This system therefore eliminates the need for further administration expectations of foreign employers, as the provisional tax system would cover the payment of taxation by South African-based employees of employers without a permanent establishment in the country.
The global shift to remote and hybrid work environments presents many employment opportunities for South Africa’s youth, as they are often seen as comparatively more skilled and affordable than their international counterparts. However, should the proposed legislation be accepted, it would impose an administrative burden on global employers, potentially making South African labour less appealing.
This further supported the Treasury’s decision, as current unemployment rates discourage activity that hinders the ability of South African residents to participate in the global labour market.
Payroll Support for Foreign Employers
While the alteration of the proposed legislation allows for a reduced administrative burden placed on foreign employers, those with a physical presence in South Africa are still required to withhold PAYE and meet all other obligations imposed on SARS-registered employers.
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