Taxation of Employees Employed to Work Offshore (prior to 183 days rule being met)
A client of ours employed someone who will work offshore for longer than 183 days/60 days consecutive days (this is clear in his employment contract). Until he reaches the 183 days how should they tax him – i.e. withhold tax each month and then give it back to him once the 183 days or deduct and pay to SARS and let the employee claim at assessment time?
Should an employer be satisfied that an employee that is ordinarily a resident in the Republic, but stationed outside of the Republic, rendering services for a resident employer complies with the exemptions set out by section 10(1)(o)(ii) of the Act it is possible for the employer to stop deducting employees tax. It must be noted that an employee must spend 183 full days in aggregate outside the borders of South Africa, the 183 days need not be continuous, however the employee must spend at least 60 continuous days outside South Africa for this exemption to apply. Proof of these travels must be kept and all travels must be in service of the employer.
The potential exemption under Section 10(1)(o)(ii) of the Act does not automatically exempt the employer from their liability to deduct and pay over employee’s tax in accordance with the Fourth Schedule of the Act. The liability of deducting PAYE will always lie on the employer, and should there be any under payment the employer will be held liable for the outstanding taxes and interest.
In the SARS document ‘Guide for Employers in respect of Employees’ Tax’, SARS provides the following advice:
“The question of whether an employee will qualify for the exemption or not is a question of fact that can… be answered [only] once the requisite number of days has been met. Directives are therefore not issued for such taxpayers. Where the employer is satisfied that the employee will meet the necessary criteria for the exemption to be granted, the employer is at liberty not to deduct employees’ tax provided that a copy of each page of the employee’s passport and a copy of the relevant contract for the services to be rendered in a foreign country are kept. Should it transpire that the employee does not qualify for the exemption, the employer will be held personally liable for any losses that SARS may suffer due to the non-deduction of the full amount of employees’ tax.”
The ultimate question of how the employer should treat the individual situation depends on the individual circumstances. If the employer is risk averse, the exemptions provided in Section 10(1)(o)(ii) of the Act should only be applied when the employer is fully satisfied that the employee meets all the necessary requirements and not before, and that the employer fully understands that should SARS find the employee does not meet all the requirements, that the employer will be held liable.