Working for a foreign company remotely from South Africa can be a fantastic opportunity for many individuals.
As a South African tax resident, you are taxed on worldwide income, meaning that all forms of income are taxed despite their location. In any event, the source of employment income will generally be where the employee renders the services. Accordingly, if the South African resident employee renders the services remotely from South Africa, the source of the employment income will be in South Africa.
Unlike South African resident employees who work for a South African employer, foreign employers may not be required to withhold and pay employees’ taxes to be paid to the South African Revenue Service (“SARS”). To this end, South African resident employees working remotely for foreign employers should register as provisional taxpayers.
Provisional tax is not a separate tax from income tax but is designed to ensure that taxpayers who work for employers who do not deduct employees’ tax from their salaries do not end up with a large tax debt on assessment when they submit their annual income tax returns. In other words, it is a mechanism that allows the tax liability to be spread over the relevant year of assessment. Upon assessment, provisional tax payments will be offset against the normal tax liability. Taxpayers may face penalties and interest if these estimates and payments are not submitted timeously and/or accurately. Therefore, it is important that South African residents working remotely from South Africa for a foreign employer consult their tax advisors when planning and maintaining their tax affairs.
It should be noted that draft legislation was released during the 2023 legislative cycle that would compel foreign employers to register for and withhold employees’ taxes on remuneration paid to their employees in South Africa. This proposal was retained in the final legislation but only with reference to foreign employers with a “permanent establishment” in South Africa. Whether an employer conducts business in South Africa through a “permanent establishment” is a complex and fact-driven matter which should be discussed with the South African tax advisor with reference to local legislation, but also any potential Tax Treaty for the avoidance of double taxation.