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Changes to tax laws in South Africa are likely to create several new roadblocks for non-resident employers, impacting remote work opportunities in South Africa, legal experts warn.
Since the Covid-19 pandemic forced many people to work from home, remote work has skyrocketed across the world.
South Africa has emerged as a popular destination for remote work due to the relatively low cost of living and fair weather – while remote workers can also earn in dollars or pounds.
This has, up until now, come without the burden of South African tax compliance.
However, new tax laws – specifically the draft Tax Administration Laws Amendment Bill (Draft TALAB) currently being processed – have thrown a spanner in the works for remote workers in South Africa.
Under the Draft TALAB, non-resident employers will have to register for employees tax.
This is designed to level the playing field for resident and non-resident employers by ensuring that both groups pay the skills development and unemployment insurance levies intended to benefit South African employees.
Impact
While the change in tax laws can be seen as a positive move for South Africans working remotely, legal experts warn it will likely also have the effect of reducing interest in offering these types of positions to local workers.
Puleng Mothabeng from Cliffe Dekker Hofmeyr said that the impact of the proposed amendments on remote workers will only be seen over time.
“However, it is (likely) that it may discourage foreign employers from employing the services of South African residents, bearing in mind the administrative burden that is likely to accompany this proposed amendment,” Mothabeng said.
Before the amendment, foreign employers ran the risk of creating permanent premises in South Africa, which would have made them liable for income tax in the country, which Mothabeng said is less than ideal.
“While the permanent establishment risk always existed, the additional employees’ tax burden adds another potential level of complexity,” she added.
Moreover, while the obligation to deduct PAYE lies with the employer, the responsibilities associated with income tax lie with the employee.
“If the proposed amendment comes into effect, it would thus be prudent for employees earning remuneration in South Africa to ensure compliance by their non-resident employers and payment of the correct amount of PAYE to SARS to avoid the employees and employers from being prejudiced,” she added.
Tax Consulting South Africa has expressed concerns over the new tax bill, stating that it will hurt the attractiveness of South African talent as it increases the overall cost to employ South African remote workers.
“This may also limit the foreign employer’s ability to pay South African workers in foreign currency,” Tax Consulting said.
It added that a reduction in remote working could simply add to the growing trend of South Africans emigrating out of the country.
The Draft TALAB, which is open for public comment until Monday, 18 September, can be found below:
Read: Work from home flatlines in South Africa
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