South African companies (or employers) utilising staff situated in a foreign jurisdiction need to be cognisant of two important tax aspects which often go unnoticed:
Firstly, they should consider whether having staff in a foreign country creates an employees’ tax consequence for them in that foreign country. This depends on the foreign jurisdiction’s tax laws, which should be considered with reference to that jurisdiction’s tax experts. In certain countries, utilising foreign employees may result in the South African employer having an obligation to withhold and pay employees’ tax to the foreign revenue authority.
Secondly, an employer should consider whether a permanent establishment is created in the foreign country. A permanent establishment generally means a fixed place of business through which the business of the employer is wholly or partly conducted. This is an important consideration as a permanent establishment in a foreign country may result in the income generated from the activities of those employees being taxable in the foreign jurisdiction. This will result in income tax consequences for the employer in the foreign jurisdiction even though it may not be tax resident in that jurisdiction.
The above two matters are complex and require in-depth analysis of the facts of each case. Any South African employer should ensure that it is aware of its tax obligations in the relevant foreign jurisdiction as well as the potential for inadvertently establishing a tax presence through a permanent establishment. Detailed discussions with your tax advisors are therefore crucial.