Big tax change coming to South Africa

The government’s updated immigration policy will allow foreign nationals to work remotely in the country without needing to register for tax in South Africa.

This is according to Nivaani Moodley, Associate Director at Webber Wentzel, who explained that an increasing number of countries are embracing digital nomads as a source of economic good.

While they may be taxed minimally, they contribute to the economy primarily through their significant daily spending.

South Africa is joining this trend, thanks to recent changes in immigration policy.

In May this year, proposed amendments to the Immigration Regulations were published for comment, including the much-anticipated “Digital Nomad Visa”. 

Research shows that remote work is in high demand since it offers employees more flexibility to manage personal and family time, Moodley explained. 

“Currently, foreign nationals entering South Africa to work for a local company are required to have the correct work authorisation to do so. Getting it means applying for the appropriate work visa as set out in the Immigration Act.”

“The existing requirements and lengthy waiting periods associated with these permits can quickly quell a foreign employee’s appetite to work in South Africa for a short period.”

The digital nomad visa is designed to make it easier for foreign workers to work in South Africa without committing to permanent employment. 

This visa is available to those who plan to work remotely in South Africa for a foreign employer or earn income from a foreign source.

To qualify, applicants must prove that they earn a gross income equivalent to at least R1 million annually.

If the visa is granted for six months or less within a 36-month period, they can apply for an exemption from registering with the South African Revenue Service (SARS). 

However, if the visa period exceeds six months within 36 months, they must register with SARS and comply with local employment laws if applicable.

Moodley added that there are some things employers need to consider when it comes to these visas. 

“Employers have to think carefully about leveraging the digital nomad visa and whether South African employment law applies to remote workers working in the country,” she said.

Even if a foreign worker doesn’t have a valid work visa, they are still protected under the Labour Relations Act.

“This raises the importance of having global mobility policies in place and including specific terms and conditions of employment in a foreign worker’s contract that address these issues,” she explained.

For example, if a foreign employer has employees with digital nomad visas working in South Africa, they need to consider potential tax implications arising from these remote working arrangements. 

The work done could establish a “permanent establishment” for the employer in South Africa, which would require the company to register with SARS and handle payroll taxes locally. 

Attorneys at Bowmans have warned that if this tax risk is not removed, “the digital nomad visa will not bring the economic boost our country so desperately needs.”

“An individual who is an independent consultant and working remotely in their capacity would not have these issues,” Moodley added. 

She explained that using “Employer of Record” (EoR) service providers is an alternative available to employers. 

“An EoR effectively employs a person on behalf of a foreign client company for a fee, minimising the costs and administrative burden associated with direct employment in South Africa, especially around tax and compliance management,” she explained but warned that there are still risks to consider.

If a worker’s earnings reach the threshold of R254,371.67 per year, an EoR and the foreign client company may be legally considered joint or sole employers of that worker in South Africa.

“If this happens, the worker will be treated as an employee of the foreign company and deemed to be party to an employment contract in South Africa, mandating registration with the Companies and Intellectual Property Commission,” she said.

“On the other end of the spectrum, South African companies wanting to engage employers of record overseas should be aware of the laws applicable in the relevant jurisdiction. In certain jurisdictions, the use of employers of record is highly regulated.”

Moodley advised that in these cases, companies should seek specialised legal advice on matters like intellectual property, tax, and employment laws specific to the foreign jurisdiction. 

Additionally, companies should carefully assess the risk of unintentionally creating a permanent establishment abroad, which could have significant legal and tax implications. “The world of work and talent is changing dramatically,” she said. 

“For employers and employees wishing to explore the world of work offered by digital nomad visas and similar programmes, it is wise to have a thorough understanding of the limits of such programs and their potential implications.”