If you are working remotely for a foreign company, lawfully meeting your tax obligations can become complex. Martin Bezuidenhout, expatriate tax attorney at Tax Consulting SA, explains.
The Covid pandemic brought about a lot of changes in terms of how we work. It become a lot more common for employees to work from home, and the idea of working remotely – in an entirely different country from your employer – also became more accepted.
This has resulted in a greater number of South Africans working for foreign companies while still living in South Africa, but this comes with some tax complications. It could result in a situation where an employee gets taxed by SARS as well as by the country where their employer is located.
Residence-based tax system
South Africa uses a residence-based tax system, which means that South African tax residents are taxed on their worldwide income (including all South African sourced income). Tax non-residents are only taxed on their income from a South African source (and on certain capital gains).
Citizenship, therefore, has minimal to no impact on how a person is taxed. Tax residency is what determines the tax regime applicable.
Section 9 of the Income Tax Act (“The Act”) provides certain scenarios in which the source of income is considered to be located in South Africa. The following sources of income are set out by The Act:
- Dividends: The residency of the company will determine the source.
- Interest: The source of income will be determined by the residence of the debtor paying/incurring the interest and the place in which the loan funds are utilised or applied.
- Royalties: The source of royalties, unless the royalty in question is attributable to a permanent establishment situated outside of South Africa, will be based on the residence of the party paying the royalties. Furthermore, income accrued from royalties will be deemed to be from a South African source if they are in connection with the use, the right of use or the grant of permission to use intellectual property in South Africa.
- Payment relating to imparting scientific, technical, industrial, or commercial knowledge: These payments will be from a South African source if incurred by a South African resident and if the information is of use in South Africa.
- Income from employment in the public sector: If a person is appointed to public office by an Act of Parliament, any income earned will be considered South African sourced income. The same applies to any amount received by a person who is in the employ in the various tiers of Government.
- Income from annuities and pensions: The source of any lump sum pension or annuity paid out will be determined by the location that the services were rendered to earn these amounts. If the person rendered this service in more than one country, then the income should be apportioned between the countries.
- Income from sale of asset: An amount received by a person in respect of the disposal of any right in immovable property is considered to be from a source in South Africa if that immovable property is situated in South Africa.
Common-law provisions
There are some sources of income that do not fall within the ambit of The Act, and the principles of the common law must be applied in these instances. The following sources of income will therefore be determined by the application of these principles (keeping in mind there is always nuance):
- Income from employment and services rendered : Source of income will be the location where the person physically rendered their services to earn the said income.
- Incidental services : If a person renders employment service in more than one international location, there will be apportionment between those locations and each country will have the right to tax a portion of the remuneration received. The nature of the services rendered will also be considered when determining the source of income.
- Partners: Income from the partnership is sourced where the relevant partner renders his or her services.
- Income generated from rented immovable property: The location of the immovable property would be used to determine the source of rental income.
Treatment of income when working remotely
South African sourced income is always taxable, regardless of whether the employee is or is not a tax resident of South Africa. You need to remember this when discussing your salary package with a foreign employer.
The approach that SARS takes in determining where the income is sourced, is to determine where the service was rendered in order to “earn” the employee’s income. To assist the taxpayer in circumstances where they will be “double taxed” by SARS and the foreign country, there is relief provided for in Section 6quat of the Income Tax Act; although full tax reduction is, in practice, unlikely.
If you are working remotely in South Africa for a foreign employer, you should ask your employer to consider your remuneration (earned for workdays spent in South Africa) as non-taxable in the employer’s country, because the source of the income will be in South Africa.
The same applies if the employer is a South African company, and the employee is working remotely in another country. The employee could in effect be double taxed, and this may lead to an administrative nightmare with continuous disputes and requests on both sides of the pond.
The best approach, and the approach recommended by SARS, is for the relevant employer to change the source code to reflect the tax status and liability of the taxpayer; for example, where appropriate, as non-taxable foreign income.
However, income earned in any country cannot merely be treated as non-taxable on the basis that the source of the income is not in that country. The principles of tax residency and the applicable income source rules must be properly, and carefully, applied in each case.
Clearly this is a complex area, and if you find yourself in such a situation, you really should consult a qualified tax practitioner ahead of the new tax season, which opens on 1 July.
This post was based on a press release issued on behalf of Tax Consulting SA.
Hi iam a South african looking to work in SA for a company in the UK, remotely from SA. How would i do my tax? and will i be taxed double ?
Good day
I am a South African resident but looking to immigrate and will be getting a work visa for Germany. I plan to work in Germany remotely for my current South African company who will pay into my South African bank account. Do I ask my South African employee to pay my entire gross salary with no deductions for UIF, PAYE, etc. and then file for taxes in Germany? My plan is to be in Germany for more than 330 days a year
Good afternoon,
I work remotely for a company in Singapore.
Can the company pay me directly? Would the company pay me my gross and make responsible for my own taxes or how would that work?
What are the implications of being paid directly instead of using a payroll company?
I only make one trip a year to Singapore and not for more than a 2 week period at a time.
Much apreciation
Hi Maya,
I have an opportunity to work remotely for a UK employer, on a 50% UK/50% SA basis. My prospective employer has no customers and no office in SA.
As a SA tax resident, I am aware I am liable to pay personal tax in SA and claim the SA taxed element from the UK tax authorities.
1. Is there any refund/relief in SA of tax paid to the UK while working in the UK? Or does that mean I would be taxed twice on the income earned while in the UK?
2. Would my UK employer, who has no customers or office in SA, have any employer tax liability in SA?
With thanks and kind regards
Hi,
I am employed by a British IT company, paid in the UK, pay UK taxes and work mainly from the UK. I do work remotely in South Africa when visiting family for about 2 to 3 months a year. Will I need to pay SARS taxes for the 2 to 3 months I work remorely in RSA?
Hi there,
Please note that any income that is sourced within the Republic of South Africa will be deemed taxable in South Africa. For context, the term ‘source’ refers to where an individual is when they are physically rendering the services.
This means that when you are in fact working in South Africa for the 2 to 3 months, the income earned during this period will be deemed to be South African sourced income and therefore taxable in South Africa.
Furthermore, considering the Double Tax Agreement (“DTA”) between RSA and the United Kingdom, there is an avenue with which these days can be considered non-taxable in South Africa. The relevant requirements contained in the DTA provision would need to be met before this income can be considered exempt from tax.
Given your unique circumstances, it would be advisable to discuss with a tax advisor who is well versed in cross border taxation to seek clarity on treatment of the income and relevant future tax planning.
Hi there,
Great article on this complex topic.
I’m considering a job offer, where I would be working full time from my home in South Africa, for a company in Germany. However my salary would be paid into a German bank account with all German taxes deducted. Since I am already paying taxes in Germany using a German tax number, which I would get assigned once I start working, how would this work with SARS? I’m having difficulty wrapping my head around how to declare this income, if I’ve already paid taxes in Germany.
As a starting point, your South African tax residency status and German tax residency status must respectively be determined. On the basis that you mention that you will be working full time from your home in South Africa, we will operate on the presumption that you are SA-resident.
In this case, German tax should not be withheld in respect of the income for services rendered while you are physically in South Africa (i.e., RSA workdays). The amounts, in this case, would be SA-sourced. This means that South Africa has the primary (i.e., first) tax right over your income. If you are an SA-resident, then South Africa will have the only right to tax the income and Germany may not impose tax.
In addition, from a South African tax filing perspective, you will need to submit 3 tax returns per year, with 2 being provisional tax returns (estimating taxable income and pre-paying tax) during the tax year, and the final tax return submitted during the annual filing season.
There will also be employer obligations for the company, as well as potential corporate income tax exposure in South Africa, in view of this arrangement. We recommend a consultation with a competent tax advisor specialising in cross-border or international tax.
Good day.
I am a South African citizen, working from home full-time. Home is currently in South Africa.
I am the sole employee of my own company. My company provides IT consulting services to an entity based in Dubai. In terms of a 12 months contract I work 8 hours per day, 5 days per week.
Can I apply for exemption under the the provisions of section 10(1)(o)(ii) “Exemption from income tax: foreign employment income” ?
And thus only pay tax on income more than R1.25 million per annum?
Thank you.
As far as I am aware this only applies if you are physically working in another country
Hi Maya, thank you for the article.
I’m currently a British citizen looking to return to South Africa to regain my South African citizenship as I was born there. I plan to work remotely for a British company when I move and also become self-employed. I’m curious how my status will affect how I get taxed and what happens if I aim to be self employed but still making my earnings from abroad? Thanks in advance
Thank you for your query.
We are not certain as to when exactly you departed from South Africa or if you have lived here for any significant stretch of time.
However, on the assumption that you have not previously been a registered taxpayer in South Africa, and had initially left South Africa as a child, you may initially be treated as a non-resident.
If you have an intention to live in South Africa on a permanent basis, you will be treated as a tax resident who is subject to tax on their worldwide income. Similarly, you will be treated as a tax resident if you are physically present in South Africa for certain qualifying periods (“the physical presence test”).
Regardless of your residency status, the income that you earn from your UK employment will be fully taxable in South Africa if you spent the relevant workdays in South Africa. If you are tax resident in the UK, then a tax credit will be provided in the UK for the RSA tax on the income for RSA workdays.
In your case, you will be required to register for income tax in South Africa, as well as provisional tax (which requires two additional, separate tax filings each year). This position would foreseeably also apply if you are self-employed.
There may be further nuance, based on your particular facts and in view of the double tax agreement between RSA and the UK.
Should you need any further clarity or assistance hereon, please do not hesitate to contact us at thomas@taxconsulting.co.za.
Hi Maya, thanks for the article! So, to confirm – I am an SA citizen, residing in SA and working remotely for an Australian company
Therefore I will be paying SA tax on this income?
You should get tax advice, but yes, as a SA resident you pay tax here
Good day
I’m a resident in south africa, hosting online sessions for a foreign company as a side hustle.
I work as an when I’m booked, no consistent schedule is set. I earn per hour worked.
Are my earnings taxable?
Yes, as a tax resident in SA ALL income you earn, irrespective of the source, forms part of your taxable income in South Africa. But you could also deduct any related expenses like data etc
Under which section can one claim home office expenses. Working remotely in south africa for USA company. No tax are deducted by them.On e-filing home office expenses and wear and tear are grayed out us soon as one state that you earn foreign income.
Hey there,
I’m currently in Canada on a visitor visa hoping to get remote work outside the country as I can’t legally work here.
I got here the 1st of September. Wondering if I do happen to get a remote job in another foreign country, what would my tax obligations be for back home (SA)?
As long as you are deemed a South African resident your tax obligation would be in SA. Best speak to a tax expert to make sure you are completing your returns correctly.
Hi,
I’m about to begin working remotely for a UK based company on a 6 month contract (I’ll be in SA 95% of the time).
Would I only have to tax to SARS? I assume the UK authorities would not tax me? Is this where my employers would need to confirm?
Also, how would the DTA agreement between SA and UK help?
Thanks
NukJack
Thank you for your enquiry. If you are a tax resident of South Africa, who lives in South Africa and your employment services are physically rendered in South Africa, you will need to register for provisional tax and ensure that your SARS returns are kept up to date, with any concomitant taxes paid to SARS.
We are not UK tax advisors, but if you are not residing in the UK, then you should not be considered a UK tax resident. The source of your employment income will be location in which the services are rendered. Therefore, your employment income should not be taxed in the UK, to the extent that you did not physically render the employment services in the UK. There is some nuance to this, and we would recommend that you obtain advice from a tax practitioner to comprehensively advise on your position and how to navigate the compliance burden in both countries.
The DTA would align with the domestic position in both countries, so we have not needed to consider this in your case.
We trust this properly clarifies, otherwise please do feel free to reach out to us at thomas@taxconsulting.co.za or martin@financialemigration.co.za.