New proposed tax laws from National Treasury may throw a spanner in the works for remote workers in South Africa, and may limit foreign companies’ ability to pay in foreign currencies.
According to tax experts at Tax Consulting SA, proposed changes to the Employee’s Tax Schedule of Income Tax, if promulgated, will result in foreign employers to register for and withhold Pay-As-You-Earn to the South African Revenue Service (SARS) as well as pay UIF and Skills Development Levies.
“At face value, this change seems minor and beneficial to the economy as SARS’ tax net will be cast quite wide. In reality, however, these amendments will have far-reaching effects and may lead to foreign employers prematurely terminating employment contracts and turning away from South Africa as a skills location altogether,” the group said.
South Africa has become something of a hot spot for remote work. The country offers a relatively low cost of living and fair weather, all while remote workers can earn in dollars or pounds. Until now, this has come without the burden of South African tax compliance regulations.
The new regulations, however, will add tax compliance hurdles to the sector.
Among other things, Tax Consulting noted that these new requirements will place additional burdens on foreign employers, as they then need to:
- Implement payroll systems;
- Register for PAYE, UIF and SDL;
- Register a branch company within SA;
- Receive a SARS income tax number; and
- Comply with the Companies and Intellectual Property Commission (CIPC) regulations.
“This, in turn, negatively affects the attractiveness of South African talent as it increases the overall cost and complexity of employing South African remote workers. This may also limit the foreign employer’s ability to pay South African workers in foreign currency,” the group warned.
If the changes have the expected cooling effect on the sector, the reduction in remote working would in all likelihood further drive South Africa’s emigration trend, it said.
Why the changes?
Tax Consulting said that the incentive for these law changes is not clear, considering that remote workers and digital nomads are most likely registered as provisional taxpayers and pay income tax on their earnings already – meaning SARS is already gaining income tax from these earnings.
However, National Treasury has indicated that this proposed amendment would level the playing field between resident and non-resident employers by ensuring that all employers using South African talent contribute the standard 1% of the employee’s remuneration to UIF and SDL.
“Provisional income tax collection from remote workers is too unpredictable, being all too difficult to police, meaning, quite simply, that SARS could be losing out on tax revenue.
“By requiring PAYE from foreign non-resident employers, SARS can guarantee the collection of revenue,” the group said.
In short, the smooth sailing that remote workers, digital nomads, and their foreign employers have been enjoying will end if, and most likely when, the Treasury implements these changes.