This recent article published by BUSINESSTECH warning remote South African workers that SARS is set to clamp down on their ability to earn income in the form of untaxed foreign exchange working for overseas countries, is nothing new. As the legislation stands currently, foreign companies who wish to employ South Africans locally are obliged to work through a local legal entity so that this legal persona can be held accountable for the withholding of PAYE and registration and levies for Workman’s Compensation, Unemployment Insurance Fund (UIF), and the mandatory Skills Development levy (SDL).
The bottom line is that persons earning an income on South African soil, whether it be at a physical location or remotely irrespective of whether the employing instance is based locally or abroad, are obliged to declare this income to SARS so that they may be tax-assessed according to their circumstances. Taxes will be levied whether you operate as a full-time, part-time, freelancer, GIG worker, etc., or whether you operate as a sole proprietor or as a company. All the new regulations seek to do is to make it more difficult for persons earning income form overseas companies to escape the taxation net.
This means that if you currently ply your trade for an overseas entity and have not declared the income you earn from this source, you may find yourself in trouble, facing the prospect of paying arrear taxes and penalties. What taxes are due will depend on how SARS deems the nature of the employment relationship you have with the overseas company: if SARS views the relationship as one of employer-employee, it will recover PAYE and other levies mentioned in the first paragraph. If you can prove that you have been operating as a sole proprietor or company, you will be liable for taxes, levies and penalties associated with those forms of engagement.
The improved regulations do not mean that your days of earning an income from foreign companies is over. There are fully compliant options available to remote workers in South Africa, viz.
1. Approach an Employer of Record Organisation (EOR) in South Africa to act as your employer for the duration of any of the contracts you hold. An EOR will ensure that you are correctly classified and that the necessary tax regulations are adhered to on your behalf.
2. Request your foreign employer to register a legal entity in South Africa and to register with SARS. Unfortunately, this is usually a very expensive option and most foreign employers will only consider this option of they have a significant number of locally based South Africans working for them.
Now is the time to protect your overseas income by speaking to an EOR such as OUTprof who will ensure that you comply with employment and taxation regulations already in place and to any further restrictions that are due for publication by SARS.
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