Tax implications of working ‘remotely’ in SA for a foreign company

The Covid pandemic has introduced a number of adjustments by way of how staff render their companies.  The theme of staff working remotely has grow to be extra prevalent, and there was an increase in South Africans working for overseas firms whereas nonetheless residing in South Africa.

The implications of the above can result in staff being taxed by Sars and by the nation the place their employer is situated.

South Africa’s residence-based system

South Africa makes use of a residence-based tax system, which implies that South African tax residents will probably be taxed on worldwide earnings (together with all South African sourced earnings). Tax non-residents will solely be taxed on South African sourced earnings and sure capital features. Citizenship, subsequently, has minimal to no impression on how an individual will probably be taxed, tax residency is what determines the tax regime relevant.

Statutory provisions

Part 9 of the Earnings Tax Act (“The Act”) offers sure situations through which the supply of earnings is taken into account to be situated in South Africa. The next sources of earnings are set out by The Act –

• Dividends: The residency of the corporate will decide the supply.
• Curiosity: The supply of earnings will probably be decided by the residence of the debtor paying/incurring the curiosity and the place through which the mortgage funds are utilised or utilized.
• Royalties: The supply of royalties, except the royalty in query is attributable to a everlasting institution located exterior of South Africa, will probably be primarily based on the residence of the social gathering paying the royalties. Moreover, earnings accrued from royalties will probably be deemed to be from a South African supply if they’re in reference to the use, the proper of use or the grant of permission to make use of mental property in South Africa.
• Cost regarding imparting scientific, technical, industrial, or industrial information: These funds will probably be from a South African supply if incurred by a South African resident and if the data is of use in South Africa.
• Earnings from employment within the public sector: If an individual is appointed to public workplace by an Act of Parliament, any earnings earned will probably be thought of South African sourced earnings. The identical applies to any quantity acquired by an individual who’s within the make use of within the numerous tiers of Authorities.
• Earnings from annuities and pensions: The supply of any lump sum pension or annuity paid out will probably be decided by the placement that the companies have been rendered to earn these quantities. If the individual rendered this service in a couple of nation, then the earnings ought to be apportioned between the international locations.
• Earnings from sale of asset: An quantity acquired by an individual in respect of the disposal of any proper in immovable property is taken into account to be from a supply in South Africa if that immovable property is located in South Africa.

Frequent legislation provisions

There are some sources of earnings that don’t fall throughout the ambit of The Act and the rules of the frequent legislation should be utilized in these cases. The next sources of earnings will subsequently be decided by the appliance of those rules (preserving in thoughts there may be all the time nuance) –

• Earnings from employment and companies rendered: Supply of earnings would be the location the place the individual bodily rendered their companies to earn the stated earnings.

• Incidental companies: If an individual renders employment service in a couple of worldwide location, there will probably be apportionment between these places and every nation can have the proper to tax a portion of the remuneration acquired. The character of the companies rendered may even be thought of when figuring out the supply of earnings.

• Companions: Earnings from the partnership is sourced the place the related companion renders his companies.
• Earnings generated from rented immovable property:  The situation of the immovable property can be used to find out the supply of rental earnings.

Remedy of South African sourced earnings 

It is very important notice that South African sourced earnings will all the time be taxable, the truth that the worker is a tax non-resident can have no impact on this. It’s subsequently essential to be cognisant of this truth when partaking along with your overseas employer by way of tax payable in your wage.

The deciding issue, which is the method that Sars takes in figuring out the place the earnings is sourced, is to find out the place the service was rendered to “earn” the worker’s earnings. To help the taxpayer in circumstances the place they are going to be “double taxed” by Sars and the overseas nation, there may be aid supplied for in Part 6quat of the Earnings Tax Act; though, full tax discount is, in observe, unlikely.

It’s steered that, if working remotely whereas in South Africa, the taxpayer ask their overseas employer to think about their remuneration (earned for workdays spent in South Africa) as non-taxable in that overseas nation, because the supply of earnings will probably be in South Africa.

The identical consequence will happen if the employer is a South African firm, and the worker is working out of the country. The worker might in impact be double taxed and this will result in an administrative nightmare with steady disputes and requests on each side of the pond. One of the best method, and the method advisable by Sars, is for the related employer to vary the supply code to mirror the tax standing and legal responsibility of the taxpayer; for instance, the place applicable, as non-taxable overseas earnings.

Nonetheless, it should be cautioned that earnings earned in any nation can not merely be handled as non-taxable on the premise that the supply of the earnings will not be in that nation. The rules of tax residency and the relevant earnings supply guidelines should be correctly, and thoroughly, utilized in every case.

It’s endorsed that you just seek the advice of with a professional tax practitioner forward of the brand new tax season opening 1 July 2022.