Thinking beyond borders
Extended business travelers with no intention to remain permanently in South Africa and who are present in South Africa for less than 6 tax years (in whole or in part) are taxable on their South African–sourced income only. Advice should be sought regarding returning South African nationals, where presence is 5 years or more, where a Permanent Resident Permit is obtained, or localization takes place.
A person’s liability for South African tax is determined with reference to their residence status. A person can be a resident or a non-resident for South African tax purposes.
A tax resident of South Africa is either an ‘ordinary resident’ in South Africa (i.e., South Africa is the person’s true home), or a ‘physically present resident’ who spends more than 91 days in total in each of the current and previous 5 tax years, and more than 915 days in total during the previous 5 tax years (the days need not be consecutive). In the latter case, the individual becomes tax resident on 1 March of the 6th year
The general rule is that a person who is a resident of South Africa is taxable on their worldwide income. Non-residents are generally taxable on income derived directly or indirectly from sources in South Africa. Extended business travelers are likely to be considered non-resident in South Africa for tax purposes unless they remain in South Africa for more than 5 years or make South Africa their true home.
Employment income is generally treated as South African – sourced compensation where the individual performs the services to earn that income while physically located in South Africa. There is no statutory definition of the source of employment income, however. There have been a recent court case which has challenged this definition, and advice should be sought to ensure income is sourced correctly.
For extended business travelers, the types of income that are generally taxed are employment income, South African bank interest, and taxable gains from the sale or deemed sale of South African immovable property. Dividends are subject to a withholding tax of 20% and interest paid to non-residents is subject to a withholding tax of 15%.
Taxable income above the threshold is subject to tax at marginal rates ranging from 18 percent to 45 percent. Non-residents are subject to the same tax rates as residents.
South Africa does not have a social security system as such. Similar levies, however, do apply, such as unemployment insurance fund contributions (1 percent for the employer, 1 percent for the employee, capped), skills development levies (1 percent for the employer, uncapped) and workers’ compensation levies (rate varies by industry). South Africa has not entered into any totalization agreements.
Taxpayers must submit their annual tax returns by a specific date each year. This date is set by the Minister of Finance in the Government Gazette each year. Tax returns must be filed by non-residents who derive South African–sourced gross income that is above the tax threshold. Individuals claiming relief from tax in terms of a double taxation agreement are required to submit tax returns to claim such relief if such earnings exceed the gross income threshold. Without submission and assessment of a tax return, a short-term business traveler is not guaranteed such relief.
In addition to the above, provisional taxpayers are required to file provisional tax returns at the end of August following the start of the tax year and at the end of the tax year. Provisional taxpayers include employees that receive remuneration from an employer which is not registered in South Africa (for example from a home country payroll), individuals that receive passive income in excess of certain thresholds, individuals that receive income from the carrying on of any trade as well as any person which the Commissioner directs.
Withholdings from employment income are made under the Pay-As-You-Earn (PAYE) system. If a South African resident employer or representative employer pays or is liable to pay taxable remuneration to an individual, PAYE withholding is required monthly. Certain social levies as noted above are also payable monthly.
Business travelers from visa-exempt countries (including Australian, Canadian, European Economic Area (EEA), Swiss, UK, and US nationals) do not require a visa to travel to South Africa for holiday purposes. They are however required to apply for a Section 11(2) visa for any work-related activities at the South African Missions prior to their arrival in South Africa. Travelers from non-visa exempt countries (e.g., Nigeria, India, Russia), require visas and should apply at the South African Missions before travelling to South Africa. The type of visa required depends on the type of activity to be undertaken in the Republic. Foreign nationals who are required to work in South Africa must apply for the appropriate work visas at the South African Missions either at their country of origin or where they have residence status.
South Africa has a broad network of double taxation treaties. Subject to certain conditions, relief from South African tax will generally apply where the individual is a tax resident for treaty purposes in the other country and is in South Africa for less than 183 days in a 12-month reference period, as defined in the relevant double taxation agreement. If the employee is paid by a resident South African entity (or provided with local benefits) or their remuneration costs are recharged to a South African entity, or attributable to a South African permanent establishment (PE), however, this relief will typically not apply to that remuneration.
There is the potential that a PE could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has, as well as the overall period of the project itself, the type of work being conducted, and whether a fixed base as defined in the relevant treaty exists in South Africa.
The principal source of indirect taxation revenue in South Africa is value-added tax (VAT). If a subsidiary or branch of a foreign-owned company sells goods or provides services, it must register as a vendor with the South African Revenue Service and charge and pay VAT. The standard rate of
South Africa has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.
In addition, a Protection of Personal Information Act, which provides for the protection of a person’s right to privacy and use of their personal information, was promulgated during 2014 and cames into full effect in 2018.
Exchange control (ExCon) regulations restrict the inflow and outflow of capital in South Africa. All foreign exchange transactions are subject to the exchange control regulations. The controls are administered by the South African Reserve Bank’s Financial Surveillance Department through its delegates at the licensed banks. Authorized dealers at every South African bank are responsible for enforcing the exchange controls.
In terms of the
It is important to note that residency status for exchange control purposes is defined without reference to tax residency status. A person will typically only be an ExCon resident if they are domiciled or permanently resident in South Africa. Foreign nationals will generally be permitted to operate non-resident bank accounts without controls subject to certain undertakings made when the account is opened
Non-deductible costs for assignees include contributions to non-South African pension funds.