The National Treasury recently proposed new tax laws concerning international employers and remote workers, and experts warn it would do more harm than good.
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 having 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 would add tax compliance hurdles to the sector and its stakeholders,” the consultancy firm said.
Among other things, Tax Consulting noted that these new requirements would 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.
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.
The rationale behind the new proposed tax laws announced by National Treasury affecting remote workers should be questioned, according to Deel, a global payroll and HR platform.
“We welcome any legislation that cracks down on the non-payment of taxes, but we question moves that may negatively impact the ability for remote workers who earn in foreign currencies to live and work in South Africa,” says Ronny Levitan, Head of Deel in South Africa.
Levitan said South Africa is crying out for foreign investment, yet moves that limit foreign companies’ ability to pay in foreign currencies may have unintended consequences of reducing global interest in South Africa – impacting the ability for local talent to be exposed to multinationals.
“Whether they work remotely or not, economically active employees are crucial to the economy, and thousands of remote workers who earn in foreign currency have their earnings deposited into local bank accounts.
“They pay tax and contribute to the fiscus by paying VAT and other everyday costs of living, be it food, entertainment, accommodation, or transport,” said Levitan.
He also noted that several other countries, like Spain and Portugal, are making it increasingly attractive for remote workers.
If South Africa wants to compete on that stage, it needs to provide a conducive environment rather than making it difficult for digital nomads to make South Africa their place of work and leisure.
“Similarly, foreign employers who see South Africa as a skills and talent location should be encouraged to grow their presence in this market.”
Recent research conducted by Expat Insider, one of the world’s largest and most cited surveys on living and working abroad, showed that South Africa ranks in the bottom 50% or lower across several metrics, ranging from quality of life, travel and transit, healthcare, safety and security, salary and job security and work culture and satisfaction.
According to Levitan, despite this, there is still strong interest from both global companies and local workers to work in this country with its relatively low cost of living, good lifestyle options and great weather.
Many remote workers receive salaries based on global salary benchmarks, often significantly higher than local equivalents, and they reap the benefits of earning in dollars, pounds or euros.
“In the last six months, 78,4% of remote independent contractors in South Africa on Deel’s platform withdrew their salaries in local currency. As most of these work in the tech and IT sectors and earn dollar-based salaries, they often fall into high individual tax brackets, which is a good thing for tax revenues,” he added.
Levitan argues that, rather than limiting South Africa’s potential as a remote working destination, South Africa should encourage skilled local workers to remain in this country rather than seek job opportunities abroad.
Closely allied to this is the deliberate creation of an environment which entices multinationals looking to boost their workforces via remote talent, said Levitan. He and other experts have noted the proposed tax laws in their current form are not a good way of promoting foreign engagement.