Proposals from National Treasury in the February 2023 budget highlight their intention to align the obligations of South African and foreign employers. We have recently been inundated with queries from foreign employers wanting to employ South Africans to do remote work. So how is the proposed legislation going to impact on these companies in terms of meeting their legislative obligations?
It is believed that Treasury and SARS may be looking to have foreign employers register as employers for PAYE purposes.
With there being inconsistencies in the legislation covering the obligations of foreign employers, a change would be prudent. Annexure C of the Budget Review 2023 proposes to align the employer registration requirements for foreign employers to ensure these rules are consistent for both resident and foreign employers. At present, foreign employers do not have to have a representative employer in South Africa to pay remuneration and deduct PAYE from remuneration paid to South African employees. These individuals would currently be registered as provisional taxpayers and be paying their tax liability by submitting returns and payments in August and February each year.
According to Treasury, foreign employers paying remuneration are not required to deduct PAYE but are required to deduct UIF and SDL (although this is unlikely to be happening in practice). A South African employer when employing their first employee is required to register as an employer with SARS for PAYE purposes, deduct PAYE from remuneration paid or payable to employees, and pay the PAYE, SDL and UIF contributions to SARS. The budget now proposes to align provisions on foreign employers to ensure consistency between resident and foreign employers.
We are aware that some ‘external companies’ have chosen to register as employers from day one as it takes the provisional tax obligation away from employees and provides a platform to pay all payroll taxes and levies to SARS monthly. Should this proposal be implemented, foreign employers will need to register with the CIPC and obtain a CIPC number as an ‘external company’. In addition to this number, they will need to get an Income Tax and PAYE number from SARS and open a South African bank account. The foreign entity, when registered as an employer with SARS, will be required to meet all payroll compliance obligations, including submission of all returns and employees’ tax certificates by the applicable deadlines.
HRTorQue Outsourcing can assist with ‘external company’ CIPC registration processes, the various SARS and Department of Labour registrations, and the running of your monthly payroll. These services will cover the payroll legislative compliance requirements that any offshore employer will need to adhere to.
For now, though, it’s a case of wait and see as to what SARS and Treasury comes back with.
We will keep you up to date as more information is made available later in the year.