Foreign employees stuck in South Africa due to COVID-19? Beware of the tax implications…

Published: 5 February 2021

Many multinational companies have foreign expatriate employees who render services in South Africa on international global mobility assignments. Many of these employees have been unable to return to their home countries at the end of their secondment arrangements due to travel restrictions, and as a result have found themselves stuck in South Africa at the end of their contracts. 

This position may result in unintended South African personal tax consequences to the individual and employment tax implications to the foreign employer, particularly if the individual continues to work remotely in South Africa and is remunerated by his/her home-country employer for such work.

The individual, as a non-South African tax resident, will be liable to be taxed on income derived from a South African source (e.g. on remuneration derived from services rendered locally, rental income and capital gains on immovable property located in South Africa etc.); and subject to any relief that may apply in terms of a double tax agreement (DTA) between South Africa and the individual’s country of tax residence.

Thus, unless the individual qualifies for relief from tax in terms of an applicable DTA, he/she will be liable for tax in South Africa to the extent that he/she renders services here. This is irrespective of where in the world an individual may be paid for these services, where the individual’s employment contract is signed or where the individual’s employer is resident.

If the individual qualifies for DTA relief, he/she will not be liable for tax in South Africa, however, he/she may on a strict interpretation of the tax legislation, still be required to file an income tax return here with SARS (unless certain exclusions apply).   

Where the individual does not qualify for DTA relief, or where South Africa does not have a DTA with the individual’s country of tax residence, he/she would be liable for tax in South Africa on the remuneration earned for services rendered here. The individual would also be required to register as a taxpayer (and potentially also as a provisional taxpayer) and file income tax returns (and if relevant, provisional tax returns) in South Africa.

The foreign employer may not have an employees’ tax (Pay-As-You-Earn [PAYE]) withholding obligation in South Africa in respect of the remuneration it pays theindividual for services rendered here, provided it does not have a “representative employer” in South Africa (i.e. it does not have a public officer in South Africa who pays/becomes liable to pay any remuneration to the individual and it also does not have a resident agent in South Africa who has the authority to pay remuneration). 

It is noted that even though the entity may not have a PAYE withholding obligation in South Africa, it may still be required to register as an “employer” for PAYE purposes in South Africa if it pays remuneration to an employee, unless none of its employees are liable for normal tax in South Africa. Importantly, this employer registration requirement exists regardless of whether the non-resident employer actually has an obligation to withhold PAYE in South Africa.

In addition, the foreign employer may also be required to register for, and pay other payroll related taxes (i.e. Unemployment Insurance Fund contributions and Skills Development Levies in South Africa).

It is thus important that foreign individuals and employers who find themselves in these circumstances assess whether there are any South African personal tax or employment tax obligations that need to be accounted for; as non-compliance may result in amongst others, reputational risk and tax penalties being imposed.