Challenges Loom for Overseas Remote Workers in South Africa

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remote worker

Adapting to Change: Thryv Accounting Breaks Down Crucial Tax Updates in South Africa

CAPE TOWN, October 2023 – A storm is brewing as the National Treasury considers new tax laws that may disrupt the smooth operations experienced by remote workers and their foreign employers.

The Proposed Changes: The New Remote Earnings Landscape in South Africa

Proposed alterations to the Employee’s Tax Schedule of Income Tax are at the heart of the matter. If enacted, foreign employers will face a series of obligations, including registering for and withholding Pay-As-You-Earn (PAYE) to the South African Revenue Service (SARS), alongside payments for UIF and Skills Development Levies.

The proposed draft for the tax administration bill raises concern, as the amendments suggest that these changes may prompt foreign employers to reconsider South Africa as a hub for skilled talent.

In addition, these upcoming changes would impose extra responsibilities on international employers. These include the necessity to:

  • Establish payroll systems tailored to South African regulations.
  • Complete registrations for PAYE (Pay-As-You-Earn), UIF (Unemployment Insurance Fund), and SDL (Skills Development Levies).
  • Undertake the registration process for establishing a branch company within the South African jurisdiction.
  • Obtain a unique SARS income tax number to facilitate compliance.
  • Adhere to the regulatory stipulations set forth by the Companies and Intellectual Property Commission (CIPC).

These multifaceted requirements not only signify an additional layer of complexity for foreign employers but also underscore the intricate web of compliance measures integral to operating within the evolving business landscape of South Africa.

Experts at CDH voice concerns about the far-reaching impact, anticipating potential premature termination of employment contracts and a shift away from South Africa as a skills destination. 

Additionally, Deel, a global figure in the payroll and HR sphere, questions the rationale behind these changes. Ronny Levitan, Head of Deel in South Africa, emphasises the importance of creating an environment that attracts foreign investment rather than deterring it.

Impact on South Africa’s Allure for Remote Work

South Africa’s appeal as a remote work hotspot may face challenges with increased tax compliance. 

The added requirements, such as implementing payroll systems and complying with Companies and Intellectual Property Commission (CIPC) regulations, could elevate the overall cost and complexity of employing South African remote workers. 

This might also curtail the freedom of foreign employers to pay South African workers in foreign currency, potentially diminishing the attractiveness of South African talent.

While the incentive for these law changes isn’t immediately apparent, the National Treasury argues that the proposed amendments aim to level the playing field between resident and non-resident employers. 

The goal is to ensure that all employers utilising South African talent contribute the standard 1% of the employee’s remuneration to UIF and SDL, creating a more equitable taxation framework.

Unintended Consequences and the Road Ahead

As the debate unfolds, potential consequences come to light. A reduction in remote working could further drive South Africa’s emigration trend, impacting both skilled local workers and the interests of multinationals. 

Experts at CDH comment on this potential change: “…It is not unlikely 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.”

They further added, “Prior to this amendment, foreign employers would have also run the risk of creating permanent establishments in South Africa and becoming liable for income tax in South Africa, which is less than ideal. While the permanent establishment risk always existed, the additional employees’ tax burden adds another potential level of complexity.”

Despite the challenges highlighted above, South Africa’s unique offerings, including a lower cost of living and good lifestyle options, should continue to attract global interest.

Preparing for the Impending Changes

While these proposed amendments are currently under public comment, the likelihood of their implementation is high. Remote workers and foreign employers may need to brace themselves for challenging times ahead.

Seeking assistance from local companies offering Employer of Record Services could provide a smoother transition and alleviate some of the burdens associated with the proposed changes.

How are remote workers taxed in South Africa?

Remote workers in South Africa are subject to taxation based on their residency status. Resident remote workers are taxed on their worldwide income, while non-residents are taxed only on income earned within South Africa. 

The country employs a progressive tax system with varying tax brackets. Remote workers must adhere to local tax regulations, which may include registering for and paying Pay-As-You-Earn (PAYE), Unemployment Insurance Fund (UIF), and Skills Development Levies. 

The recently proposed tax amendments aim to expand the tax net by obliging foreign employers to register for and withhold PAYE, potentially impacting the attractiveness of South Africa as a remote work destination. 

But the landscape is ever-evolving, emphasising the importance of staying informed about tax laws and seeking professional guidance for compliance in this dynamic environment.

Client Impact: Navigating Regulatory Changes with Expert Guidance

As the proposed tax amendments in South Africa loom on the horizon, Thryv Accountants, a distinguished accounting firm based in Cape Town, realises the potential challenges and emphasises the necessity for foreign employers to implement comprehensive payroll systems, register a branch company within South Africa, and diligently adhere to an array of regulatory requirements.

Arnaud Brunel, Co-founder of Thryv Accountants, articulates the firm’s commitment to client support during this transitional phase: “We recognise the complexity these changes introduce, from establishing payroll systems to navigating intricate regulatory frameworks. Our commitment is to guide our clients seamlessly through these shifts, ensuring not just compliance, but a proactive and smooth transition,” states Mr.Brunel.

Final Thoughts: Charting a Course Through Shifting Realities

At the heart of this matter, South Africa’s tax system for remote workers is currently on the brink of serious changes. As stakeholders and employers abroad adapt to potential tax hurdles, the key lies in maintaining an environment that encourages foreign investment and sustains South Africa’s appeal as a remote work destination.

Contact us for assistance and expert advice, or schedule a free video consultation at your earliest convenience.

Information about the authors, publication, and publisher

Picture of Author - Arnaud Brunel

Author - Arnaud Brunel

After a 15 year long career in International Banking and Compliance, Arnaud launched multiple businesses in Cape town. He still heads 2 of these businesses today in the Digital Marketing Industry with Brunel Studios and in the Financial Industry with Thryv.

Picture of Publication & Publisher - Thryv Accountants

Publication & Publisher - Thryv Accountants

Thryv accountants is a private accounting company that focuses on outsourcing of the financial functions of small and medium companies in Cape Town and other regions of South Africa.

The publications on this website are for information purposes only. They are based on our professional opinion.

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