The proposed amendment to the Employee’s Tax Schedule of the Income Tax Act, if promulgated, will result in foreign employers needing to register for and withhold Pay-As-You-Earn (PAYE) to the South African Revenue Service (SARS) as well as pay UIF and Skills Development Levies. At face value, this change seems minor and beneficial to the economy as SARS’ tax net will be cast quite wide.
In reality, however, these amendments will have far-reaching effects and may lead to foreign employers prematurely terminating employment contracts and turning away from South Africa as a skills location altogether.
For one, this new requirement will place an additional burden on foreign employers, as they then need to –
- Implement payroll systems;
- Register for PAYE, UIF and SDL;
- Register a branch company within SA;
- Receive a SARS income tax number; and
- Comply with the Companies and Intellectual Property Commission (CIPC) regulations.
This, in turn, negatively affects the attractiveness of South African talent as it increases the overall cost and complexity of employing South African remote workers. This may also limit the foreign employer’s ability to pay South African workers in foreign currency.
The incentive for these law changes is not clear off the bat, considering that remote workers and digital nomads are most likely registered as provisional taxpayers and pay income tax on their earnings already – meaning SARS is already gaining income tax from these earnings.
A reduction in remote working will in all likelihood further drive South Africa’s emigration trend.
This ultimately begs the question – why?
Bronwin Human
