As of the end of 2023, foreign employers must register as “employers” with the South African Revenue Service (SARS) – meaning they’re now mandated to withhold and pay PAYE.
This is according to consultancy firm PwC, which warned affected firms that this is a notable change that needs to be addressed to avoid non-compliance.
“There has been a significant change (effective from 22 December 2023) to the employment withholding tax (PAYE) responsibilities of a foreign employer who conducts business through a South African (SA) permanent establishment (PE).
“Such foreign employers are now required to register for and withhold PAYE,” said PwC.
Before the amendment, a foreign employer with no ‘representative employer’ in South Africa with the authority to pay remuneration need not deduct PAYE from the amounts it pays to South African employees as these individuals will pay the income tax due as provisional taxpayers.
However, in the February 2023 budget, the National Treasury proposed to align provisions on foreign employers to ensure consistency between resident and foreign employers, which is now the case.
According to PwC, the amendment now requires that every non-resident employer who:
- Conducts business through a South African Permanent Establishment; and
- Pays or becomes liable to pay any amount by way of remuneration to any employee must withhold and pay over PAYE to the South African Revenue Service (SARS).
It is important to note that the amendment only affects a foreign employer’s PAYE obligations.
Their obligations with respect to the Skills Development Levies (SDL) and Unemployment Insurance Fund (UIF) obligations remain the same as before, i.e.:
- UIF – All employers and employees must pay UIF unless a specific exemption applies (e.g. in the private sector, where employees are employed for less than 24 hours in a month).
- SDL – All employers are required to pay SDL on remuneration payable to all SA-based employees unless the total remuneration is expected not to exceed R500,000 during the following 12-month period.
“SA PEs of foreign employers should consider the new PAYE requirements to confirm whether they should register for and withhold PAYE from employees,” said PwC.
“The SA PE should also advise its foreign head office of the broad application of the new PAYE requirements, i.e. that a PAYE obligation can arise where the employer employs a South African resident in a foreign jurisdiction or where an employee of the company exercises his / her employment (independent from the SA PE) in SA,” it added.
PwC warned that the appropriate guard rails should be put in place to avoid non-compliance.