Expatriates – who is liable for the tax in SA?

An increasing number of foreign nationals employed by multinational companies are accepting assignments or secondments to South Africa. What income tax liabilities do they have, and what obligations does SARS impose on their employers?

“As non-residents for tax purposes, expatriates can only be taxed on income from a South-African source,” says a consultant of a global audit, tax and advisory firm. The source of income from employment is located where the services are rendered – irrespective of where remuneration is paid, where the contract of employment was concluded, or the currency in which payment takes place.

“Generally, income earned by expatriates for services rendered in South Africa is subject to tax. There are no tax advantages to paying their salary into an account outside of SA,” she says

Expatriates must lodge income tax returns in South Africa and pay the tax on their income from a South African source. Those who fail to do so run the risk of incurring penalties, interest and additional tax.

The provisions of a Double Taxation Agreement (“DTA”) between the expatriate’s home country and South Africa must, however, always be considered as some short-term assignments (less than 183 days in a 12-month period) may be free from tax in South Africa.

Generally, DTAs provide that where all remuneration is paid by a foreign employer and not paid from the profits of a South Africa base or branch, any remuneration paid to expatriates who perform services in SA for less than 183 days in a 12-month period will be taxed fully in the foreign country, and no SA tax liability will arise.

When it comes to withholding tax from remuneration, employers (or representative employers) are only obliged to do so if they are a South African resident. A South African agent paying expatriates on behalf of a non-resident employer is regarded as a representative employer.

“Where expatriates are assigned to a South African entity and paid by a foreign employer it is necessary to examine critically whether the South African entity can be regarded as a representative employer,” she says.

• A South African subsidiary may be regarded as a representative employer if the salary costs are on-charged to it.
• A South African branch of a company incorporated and effectively managed abroad may not technically be a representative employer as it is not a South African resident. However, SARS may well view it as a representative employer if the branch is registered with SARS as an employer because it employs local staff.

An employer who fails to deduct employee’s tax and pay it within the prescribed period can be liable, on conviction, to a fine or imprisonment, or both. In addition, interest at the prescribed rate, as well as penalties, may be imposed in respect of the late payment of any outstanding employees’ tax. In certain circumstances, additional tax may also be levied.

“Expatriates should note that their tax liability is distinct from the employer’s liability to withhold tax. The expatriate’s tax liability in South Africa exists regardless of whether the non-resident employer is obliged to deduct tax or not,” she concludes.

TAXtalk: www.taxtalk.co.za

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