New SARS forex regulations ‘absurd’

South Africans who earn their income in a foreign currency and their employers will soon face a lot more red tape with the South African Revenue Service (SARS), which could discourage international companies from hiring South Africans.

The National Treasury has proposed new foreign exchange regulations for South Africans who work for a foreign company and earn their income in a foreign currency.

Future Forex’s Harry Scherzer told MoneywebNow that these new regulations – if passed – could be an “own goal” for the South African government.

Previously, when a South African was earning money abroad, it was their responsibility to pay provisional tax in South Africa. 

For example, a taxpayer who earned dollars in an offshore account because they did services for an American company had to declare this money to SARS, convert it to rands and pay their taxable income from these rands.

However, the National Treasury thought this system could simply be sidestepped by taxpayers not declaring their forex earnings.

“So what they’ve done is, instead of putting the onus only on the South African taxpayer, they’ve now put the onus on both the South African taxpayer and on the foreign company that is paying the salary to the South African,” Scherzer explained.

Therefore, foreign companies employing South Africans now have to form a sub-branch in South Africa, register via the Companies and Intellectual Property Commission, and register for pay-as-you-earn tax on their employee’s behalf. 

“It’s absurd,” he said. “It basically creates huge amounts of red tape, which a smaller company in, for example, Spain, isn’t going to want to do.”

Scherzer said South Africans normally make excellent employees for foreign companies, as they are competent, highly educated, skilled, and cheap relative to Europeans and Americans.

However, the red tape that comes with these new regulations could see foreign companies go one of two ways. 

Firstly, they could say, “South Africans were great and cheap, but unfortunately, the red tape has made this too onerous for us, and we have to cut ties with South African employees.” 

Alternatively, Scherzer sees companies entering the market and registering in South Africa as the South African leg for foreign entities, becoming essentially ‘intermediaries’ that will handle SARS and the National Treasury on behalf of foreign companies.

“I think this is where disruption might be rife to ensure that we can kind of step across these changes in regulation rather than cutting ourselves off to foreign entities entirely,” he said.

However, Scherzer said the South African employees of these companies could also find ways to simplify the new regulations.

For example, the employees could register a company in South Africa and outsource themself as a company to foreign entities, which would sidestep the proposed regulations.

These regulations have not been passed yet and are still open for comment until 31 August 2023.