Foreign expatriates most often than not command an extremely high price tag. However, this high asset workforce need careful planning regarding their reward package and tax structure, administration of their payroll and full compliance from a work permit / immigration perspective.
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Whether an organization adopts a balance sheet or local plus approach to their expatriate packages the correct structuring of an expatriate’s reward package is a contentious and complicated issue. However, it is so important that an attractive package is on offer which needs to be augmented with employee development and succession management.
Expatriate packages are usually extremely expensive, and the tax cost is one of the biggest components of the expatriate’s remuneration. However, there are some mechanisms to limit taxes and to structure an expatriate package more efficiently which should always be investigated before a package is finalized.
When an expatriate is first assigned to South Africa a gross-up/build-up computation needs to be calculated. We will request that the Company provide us with all the relevant information that is required to calculate the employees’ tax. The calculation will incorporate all recurring earnings, allowances and benefits that are paid, through the payroll and the finance department, to the expatriate both locally and abroad.
Bi-Annual and Break-even Reconciliations
On a monthly basis, the estimated employees’ tax, SDL and UIF for each expatriate is computed and remitted to SARS. However, during the period variances might arise between the actual employees’ tax, SDL and UIF that needs to be remitted to SARS. Reasons for the differences are possibly
Expatriate payrolls are complex which required a certain skill level both in home and host countries to ensure absolute compliance whilst compensating the employee accurately according to their assignment terms and conditions.
Tax efficiencies surrounding these complex matters should be transitioned into a fully compliant payroll which ultimately provides an accurate IRP5 certificate at the end of each respective tax year.
All expatriates are required to submit a tax return for income earned for services rendered within South Africa.
Based on the February bi-annual reconciliations performed, income tax returns (ITR12) will be completed and submitted to SARS for the relevant year of assessment. This should be quite a seamless process for the expatriate if the bi-annual reconciliations were properly prepared and accurately captured on payroll.