Authored by Anthea Scholtz: Global Employer Services Leader | Deloitte Africa Tax & Legal, Claudia Gravenorst: Associate Director | Global Employer Services | Deloitte Africa Tax & Legal
Many non-South African tax resident multinational companies, including their South African (SA) branches (i.e., foreign employers), have expatriate employees (assignees) who are seconded to South Africa to render services in the country on international global mobility assignments. In certain cases, foreign employers may also have SA tax resident assignees rendering services to them in foreign countries. Prior to the promulgation of the 2023 Tax Bill, the foreign employer didn’t have an obligation to withhold employees’ tax Pay-As-You-Earn (PAYE) in South Africa in respect of any SA taxable remuneration it pays or is liable to pay to these assignees in respect of their services rendered in South Africa or the foreign country. However, effective 22 December 2023;
Accordingly, these foreign employers must deduct PAYE from any SA taxable remuneration paid to any persons, unless the South African Revenue Service (SARS) directs otherwise. These foreign employers are also required to register as an “employer” with SARS for PAYE purposes where it has any employees who have a tax liability in South Africa.
Interestingly, the requirement that the foreign employer must have a PE or representative employer in South Africa, for it to have a PAYE obligation in South Africa, was not extended to the relevant Skills Development Levies (SDL) and Unemployment Insurance Fund (UIF) Acts as expected. This means that the anomaly and non-alignment between the PAYE provisions and the relevant SDL and UIF Acts remain, in that where a foreign employer does not have a PE or representative employer in South Africa, and thus would not have a PAYE withholding obligation in South Africa, it will continue to have an SDL and UIF obligations in South Africa.
The amendment does therefore not achieve alignment between the Income Tax Act and the relevant SDL and UIF Acts.
In addition, despite it not having a PAYE withholding obligation in South Africa, the foreign employer would also still have a PAYE registration obligation in South Africa, as the PAYE registration requirements were also not aligned.
Accordingly, where a foreign employer does not have PAYE withholding obligation in South Africa, the law as it currently stands, continues to place SDL and UIF withholding obligations (and in PAYE registration obligation) on the foreign employer.
It would be a positive development for foreign employers should the National Budget propose the alignment of the provisions of the SDL and UIF Acts that will bring them into the SA employment tax net and their PAYE registration requirements, to the relevant PAYE provisions, so that where a foreign employer does not have a PAYE withholding obligation in South Africa, it should also not have SDL and UIF obligations in South Africa and it should also not have an obligation to register for PAYE.
In the absence of such proposal, foreign employers who pay SA taxable remuneration to any persons should carefully assess their SA employment tax obligations. In addition, the fact that the foreign employer may operate a shadow payroll in South Africa does not automatically eliminate its employment tax obligations in South Africa and/or its employees’ provisional tax obligations. Specialist advice should therefore be obtained when setting up a shadow payroll arrangement in SA to ensure that all employment tax risks are adequately addressed or mitigated against.