International companies must think twice before hiring South Africans for remote work
International companies are being warned to think twice before hiring South Africans for remote work.
This is because hiring remotely could expose them to unexpected tax liabilities, as revenue authorities across Africa tighten rules around cross-border employment.
This is the feedback from Michael Hewson, director at Graphene Economics, who said that remote workers are increasingly becoming a tax and regulatory risk.
Speaking in an interview with HOT Business, he said the tax implications of remote work are becoming particularly important for multinational companies that employ people across borders.
Hewson explained that there are several scenarios where remote work arrangements can unintentionally create a taxable presence for a company in another country.
A common example involves employees relocating for personal reasons while remaining employed by the same company, or simply hiring outside of their borders.
He added that businesses entering new markets can create tax complications if employees in another country meet clients and build operations there.
According to Hewson, these situations can create what is known as a “permanent establishment”, where authorities determine that a company has established enough of a commercial presence in a country to become liable for corporate taxes there.
“From a tax point of view, there’s the individual that needs to consider where they must be paying their personal tax, the pay as you earn,” he said.
“But a company could also have a tax consequence through permanent establishment. This is because they are creating a taxable presence by having their employees spend certain amounts of time in that other country.”
Hewson said recent guidance from the Organisation for Economic Co-operation and Development has attempted to clarify how remote work can trigger these risks.
“The guidance from the OECD says that there are certain indicators that could help to identify where this risk arises,” he explained.
“One indicator is the amount of time an employee spends in another country. If an individual is spending approximately 50% or more of the time in a particular country, that could be an indicator that a permanent establishment is arising there,” Hewson said.
Tax authorities are becoming more aggressive
Another important consideration is the motivation behind the employee’s presence in that country.
This considers the difference between being motivated by personal reasons, such as a desire to be near family, and being focused on professional goals, such as expanding the market for their company.
However, Hewson stressed that the OECD framework is only guidance, and businesses still need to comply with the laws of individual countries.
“At the end of the day, in every country where individuals are going, it’s important to consider the letter of the law in that country and be aware of the requirements in those individual countries,” he said.
He warned that African tax authorities are becoming increasingly aggressive in targeting remote work arrangements as governments search for additional revenue.
“We’ve seen in the last 12 months or so that a number of countries have introduced or amended specific requirements in this regard.”
According to Hewson, in some cases, companies may create a taxable presence even without having a physical office in a country.
“Even if you’re not physically present in the country, but you’re rendering services for a period of more than 90 days in 12 months, that could trigger a permanent establishment,” he said.
Hewson warned that some companies may already have hidden tax exposure without realising it.
“What we are recommending to our clients and to other companies is that first and foremost, you track where the employees are working from,” he said.
He outlined a five-step approach for businesses managing cross-border remote workers in and out of South Africa.
This includes tracking employee locations, assessing employee roles in each jurisdiction, documenting the commercial reasons for remote arrangements, reviewing remote work policies, and understanding country-specific legal requirements.
“The last thing in this five-step plan is to make sure you’re considering the in-country requirements because it does differ and there are nuances from one country to another,” Hewson said.
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