Taxation of Foreign Employment Income – Individual’s Perspective

In March 2020, the South African amendment to the taxation of foreign employment income will come into action. This amendment brings into remuneration (taxable income) all foreign employment income for South African resident tax payers subject to an exemption of one million Rand. For an individual the solution to this challenge may not be as complicated as they think; and financial emigration is not necessarily the solution.

“There shall be exempt from normal tax any form of remuneration to the extent to which that remuneration does not exceed one million Rand in respect of a year of assessment and is received or accrues to any employee during a year of assessment by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance including any income referred to in paragraph (i) in the definition of gross income in section one or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer if that employee was outside the Republic.”

In deciding whether an individual may be impacted by this change in legislation and what their best options might be the following tests would need to be applied:

  1. Whether they are South African tax resident as they would not need to disclose foreign employment income if they are not resident (this test would need to be applied for all years post their last South African tax submission). This test would require looking at both the following:
    a. Whether they are ordinarily resident in South Africa; and
    b. Whether they meet the Physical Presence Test
  2. They would then need to consider whether their income might be excluded on the basis of a relevant double tax agreement (DTA) between South Africa and the relevant country in which the income is earned (e.g. clause 14 of the UK South Africa DTA by way of example)

If they are tax resident in South Africa under the first part and are not protected by a DTA then the legislation would apply to all their employment income (remuneration and any fringe benefits). 

It is important to note that even if the tests show they are not currently tax resident, if they choose to financially emigrate they would still need to consider the tests above each year as they may subsequently become RSA tax resident again. Financial emigration is a Reserve Bank process and not a tax process and while a SARS clearance letter is required for this process it does not trigger a de-registration for tax nor does it stop SARS from reviewing your residency each year. 

An individual may therefore face a number of choices:

  1. Leave their position as is i.e. don’t change their financial emigration status, but make sure their tax affairs in South Africa are in order. This would likely entail submitting an annual income tax return in South Africa each year. If they are not RSA tax resident then they would declare no foreign income on the return unless they had income from a South African source (e.g. income from assets in South Africa). We would consider this the most pragmatic solution; or
  2. Elect to financially emigrate. This would only be a financial emigration and would not, based on current legislation, impact their ability to hold a South African passport. If they do decide to financially emigrate a number of steps would follow:
    a. They would need to make sure their tax affairs are in order, submit all outstanding tax returns to SARS and apply for a tax clearance certificate and permission to financially emigrate.; and
    b. Submit an application to the Reserve Bank for financial emigration.

Importantly, financial emigration triggers a capital gains disposal – this would mean as part of the process they would need to calculate the capital gains on their global assets and declare these to SARS and pay any tax owing (This is a notional calculation and would not mean they have to actually dispose of all their assets). The benefit would be any future capital gains post the date of financial emigration would not be taxed in South Africa unless they subsequently became tax resident again.

Conclusion

There are various options open to individuals to manage the new legislation in relation to foreign employment income. Financial emigration is not however the best nor a clear-cut solution to the challenge. In fact, no steps can be taken that could completely remove any risk of SARS trying to rule the individual is ordinarily resident in South Africa. However, by taking some basic steps we believe it is possible for the individual to mitigate most of this risk albeit they may need to monitor this carefully on an ongoing basis.

Increase in South African Tax Filing Threshold to R500,000

Editor’s Note: HRTorQue’s tax team can file your individual tax return for you. We have a special 10% discount for employees of our clients. Please contact us for more info.

On Tuesday, 4 June, the SARS Commissioner announced that SARS has increased the tax return threshold from R350,000 per annum to R500,000 per annum.

This means that only people whose total employment income before tax is more than R500,000 per year will need to file their tax returns.

However, this is not the only test and individuals will not need to submit a tax return if all of the following criteria are met:

  • Your total employment income for the year before tax is not more than R500 000;
  • You only receive employment income from ONE EMPLOYER for the full tax year.
  • You have no other form of income, e.g. car allowance, business income, and rental income, taxable interest or income from another job.
  • You don’t have any additional allowable tax-related deductions to claim, e.g. medical expenses, retirement annuity contributions and travel expenses.

If these criteria are not met then you will need to file a tax return.

Taxpayers who file their income tax returns at a SARS branch can do so from 1 August 2019.

Taxpayers who are registered for eFiling or have access to the MobiApp can file their income tax returns from 1 July 2019.

The closing dates for Tax Season are as follows:

  • 31 October 2019 for branch filing.
  • 4 December 2019 for non-provisional taxpayers who use eFiling and the MobiApp.
  • 31 January 2020 for provisional taxpayers who use eFiling.

Taxation of Foreign Employment Income

Editor’s Note: HRTorQue is able to assist both employers and employees in managing this far-reaching change. Feel free to contact us.

In April 2020, the taxation of foreign employment income will come into action. This amendment brings into remuneration (taxable income) all foreign employment income for South African resident tax payers subject to an exemption of one million Rand. This amendment will have significant implications for employers who have South African employees on their international payrolls. Treasury is already consulting with the Payroll Authors Group and other entities to consider whether the s(6)quat deduction for foreign employment tax can be practically applied in payrolls.

We would strongly recommend employers consider the impact of this amendment on their employees in advance of implementation. This will likely have an impact on both the employer and employee.

The amendment reads as follows:

“There shall be exempt from normal tax any form of remuneration to the extent to which that remuneration does not exceed one million Rand in respect of a year of assessment is received or accrues to any employee during a year of assessment by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance including any income referred to in paragraph (i) in the definition of gross income in section one or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer if that employee was outside the Republic.”

Namibia Implementation of Integrated Tax System

(Source: CRS)

The Ministry of Finance has developed an integrated information technology solution for the administration of taxes. The new system, known as Integrated Administration System (ITAS) is replacing the existing legacy system (Taxlive) and became operational on 17 January 2019.

Taxpayers are urged to register as E-service users and maximize the benefits of electronic filing. To register, log in on www.itas.mof.na and download the ITAA Portal User Guide.

Key changes employers should take note of:

  • Taxpayer Identification Number (TIN): The new system requires a “0” (zero) to be added in front of your existing TIN. Current TIN’s (7 digits) on Taxlive will be migrated to ITAS, where an additional digit, ‘0’, will be added in front of the existing 7 digits in order to make up the 8 digit TIN required for ITAS.
  • Employees Tax Return Tax details (ETX): An employer’s Tax return is designed to capture employees tax detail. This change will be effective as from 1 March 2019, and all employers will be required to submit a detailed monthly ETX return which contains Employees’ PAYE 4 details as opposed to just a monthly payment. An excel sheet template designed for this purpose can be downloaded from the portal and can be uploaded after completing it when the taxpayer submits the return.
  • Tax Period Number for all Tax Types: With ITAS, the tax period number does not represent the calendar Month. For example, period 01/2019 does not mean January 2019, but it means period one (1) of 2019.

The submission of monthly employee tax (PAYE) returns are expected to be lodged online, through the ITAS portal as from March 2019. The online submission is done by completing an Excel spreadsheet with detailed payroll information of employees and uploading it on ITAS.

The Ministry was informed that some employers are not ready to submit their PAYE returns electronically due to the need to adjust their payroll systems in order to be compliant with the ITAS requirements.

It was agreed that affected employers may submit their monthly PAYE returns manually until September 2019. Thereafter no manual submissions for PAYE will be accepted.

Employers opting to submit their returns manually must take note that they are obliged to update all manual submissions by uploading electronic versions on ITAS by September 2019.

The deadline for submission and payment remains the 20th of every month.

Employer Filing Season – Open 17 April and Closed 31 May 2019

Editor’s Note: For customers using Sage VIP, HRTorQue offers a service to either prepare these on your behalf, or to assist in the preparation.

SARS Moves to New Hosting Platform

As part of its plans to upgrade its Information Technology (IT) systems, SARS will be migrating to a new electronic service hosting platform in April. Taxpayers may experience intermittent downtime from 17h00 on Friday 12 April 2019 to 06h00 on Tuesday 16 April 2019.

The migration will impact the following SARS systems:

  1. SARS eFiling and SARS eFiling app (including registrations, filing, payment and the functionality to upload supporting documents)
  2. SARS [email protected] Employer
  3. SARS website.

Taxpayers can go to any SARS branch or contact the SARS Contact Centre on 080 000 7277 / +2711 602 2093 (during normal operating hours) for assistance during this time.

Please note that SARS eFiling payments cannot be made during the period of downtime, but alternative payment methods will be available.

Employer Filing Season Dates

The employers filing season for tax certificate submissions in respect of the 2018/19 year of assessment normally opens on 1 April and closes on 31 May of each year. Last year, the opening date was delayed to mid-April 2018, and due to the above migration, will this year only open after the migration on 17 April 2019.

It will close on 31 May 2019 as normal.

The SARS PAYE BRS tax certificate specification for February 2019 tax certificates is unchanged from the specification for the August 2018 mid-year tax certificate submissions.

Income Tax Number Application Service

“My employees don’t need an Income Tax number as they earn below the tax threshold and do not pay tax.”

This is a statement that we often hear in the payroll environment. The most recent SARS Business Requirements Specifications (BRS) however clearly states that an Income Tax number for EVERY employee is mandatory. This means that IRP 5 submissions to SARS are rejected if all employees do not have Income Tax numbers. Such rejections cause bottlenecks for us and that could result in the client’s IRP 5 disk not being accepted by the 31 May deadline. 

A late submission carries a 10% penalty calculated on the total PAYE liability for the year. This would be a disaster for any company, particularly considering the fact that such Income Tax numbers could be obtained electronically by registered tax practitioners at a low cost. Using this approach will also mean that employees are not required to visit SARS to hand in manual applications, thereby saving time and effort and improving productivity.

HRTorQue Outsourcing can assist you with the registration of your employees for Income Tax purposes. We can manage the process from start to finish. Our consultant will obtain the employees personal information from your payroll administrator and do the necessary applications. The turnaround time for this process is 24 hours and the cost per application is R 240 plus VAT*. A volume discount of R 150 plus VAT per application will be applied to requests that involve more than 15 applications at a time. 

Should you need assistance in this regard please do not hesitate to contact Dave Beattie on 031 582 7410 or [email protected].

*Prices valid as at 31 March 2019.

Non-compliant Bargaining Councils – Taxable Levy

Bargaining Councils provide various funds for their members including, but not limited to, sick, holiday and retirement funds. Employers contribute to these funds on behalf of those of their employees who are members of the Bargaining Council, and in some cases, the employee-members also contribute to the fund or funds.

For many years, the contributions to, and the pay-outs by, some bargaining councils have not been taxed correctly. After a lengthy investigation, amendments were made to the Income Tax Act, referred to as “Bargaining Council Tax Relief”, in order to give a measure of tax relief to these councils for their historical non-compliance with the intention of turning them into compliant taxpayers in the future, and to provide new taxation rules from 1 March 2019.

Prior to 1 March 2019:

Non-compliant Bargaining Councils must pay a levy of 10% of the total PAYE that should have been deducted from all payments made by them to their members during the period from 1 March 2012 to 28 February 2017.

Post 1 March 2019:

Employer-paid premiums to Bargaining Councils in respect of a scheme or fund as contemplated in section 28 (1) (g) of the Labour Relations Act, as well as payments by Bargaining Councils to members, are now aligned with the principles of the tax rules that govern employer-paid contributions to retirement funds.

In line with this principle, the taxation rules for contributions to funds administered by Bargaining Councils are as follows:

  1. Employer-paid contributions for the benefit of employees will constitute a taxable fringe benefit.
  2. The value of the taxable fringe benefit will be the value of the employer-paid contribution.
  3. Employee-paid contributions are not tax deductible.
  4. If these rules are complied with, payments made by the funds to their members are tax free.

These rules are effective from 1 March 2019.

Note that if the fund administered by the Bargaining Council is a retirement fund, the taxation rules for retirement funds that are effective from 1 March 2016 (and that provide for a tax deduction to reduce the taxable benefit value), must be applied.

Tax Certificates:

The employee-paid contribution is not used for PAYE calculations and is not reported. The employer-paid contribution and the taxable benefit must be reported as follows.

CODECODE DESCRIPTIONSTATUS
4584Employer-paid Contributions to a Bargaining Council FundOld
4584Employer contributions to a Bargaining Council FundNew
3833Taxable benefit iro Employer contributions to a Bargaining Council FundNew

Employee New PAYE Business Reporting for Employer Filing Season

Effective September 2019

SARS published the tax certificate specification document on 21 January 2019.

The document specifies the requirements for the generation of an import tax file for the annual as well as the interim submission. The requirements in this version of the BRS will become effective from September 2019 PAYE interim reconciliation period.

The details of the changes are highlighted in green in the BRS.

To access the new BRS, follow the link.

2019 Budget and Tax Highlights

We will be going through the budget in more detail and will hold our annual tax seminars in due course (dates to be announced) when we have had time to consider the practical application of new rules on payrolls and employers.

In the interim, the key highlights and overview of tax changes are obtainable from Treasury using the following links:
•  Budget Highlights
•  Tax Guide 2019
•  Tax Legislative Changes

One of the positive things to see is that SARS intends resurrecting the large business centre with a hope to start this again in April 2019. They have also emphasised their commitment to improving their IT infrastructure.

Other relevant highlights are the following:

Employment Tax Incentive
In 2018, Government extended the employment tax incentive by 10 years. In addition, the eligible income bands will be adjusted upwards to partially cater for inflation. From 1 March 2019, employers will be able to claim the maximum value of R1 000 per month for employees earning up to R4 500 monthly, up from R4 000 previously. The incentive value will taper to zero at the maximum monthly income of R6 500.

Medical Tax Credits
To generate additional revenue of R1 billion in 2019/20, there will be no change in the monthly medical tax credit for medical scheme contributions.

Fuel Taxes
South Africa has three main fuel taxes that apply to petrol, diesel and biodiesel: the general fuel levy, the customs and excise levy and the RAF levy. These levies fund general government expenditure, support environmental goals and finance the RAF. From 5 June 2019, a carbon tax of 9c/litre on petrol and 10c/litre on diesel will become effective. Diesel refunds cannot be claimed against this tax. The general fuel levy will be increased by 15c/litre for petrol and diesel from 3 April 2019. The increase is slightly below inflation. Government also proposes to increase the RAF levy by 5c/litre from 3 April 2019.