Tax Hurdles for Remote Workers and Digital Nomads

South Africa (SA) remains a hot spot for remote work. On the one hand, digital nomads and remote workers with foreign employers get to enjoy the South African lifestyle, good weather, and the luxury of earning Dollars and Pounds. On the other, foreign companies benefit from employing skilled South Africans, comparatively cheaper than their foreign counterparts, and without the burden of adhering to South African tax compliance regulations.

Darren Britz
Partner and Head of Tax Legal

Bronwin Human
Tax Attorney

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Unfortunately, remote workers and their foreign employers can expect to face a few compliance hurdles in the coming months as the National Treasury released proposed amendments to the Income Tax Act this week.

Bumpy Road Ahead

The proposed amendment to the Employee’s Tax Schedule of the Income Tax Act, if promulgated, will result in foreign employers needing to register for and withhold Pay-As-You-Earn (PAYE) to the South African Revenue Service (SARS) as well as pay UIF and Skills Development Levies. At face value, this change seems minor and beneficial to the economy as SARS’ tax net will be cast quite wide.

In reality, however, these amendments will have far-reaching effects and may lead to foreign employers prematurely terminating employment contracts and turning away from South Africa as a skills location altogether.

For one, this new requirement will place an additional burden on foreign employers, as they then need to –

Implement payroll systems;
Register for PAYE, UIF and SDL;
Register a branch company within SA;
Receive a SARS income tax number; and
Comply with the Companies and Intellectual Property Commission (CIPC) regulations.

This, in turn, negatively affects the attractiveness of South African talent as it increases the overall cost and complexity of employing South African remote workers. This may also limit the foreign employer’s ability to pay South African workers in foreign currency.

The incentive for these law changes is not clear off the bat, considering that remote workers and digital nomads are most likely registered as provisional taxpayers and pay income tax on their earnings already – meaning SARS is already gaining income tax from these earnings.

A reduction in remote working will in all likelihood further drive South Africa’s emigration trend.

This ultimately begs the question – why?

The Big Question Answered

National Treasury has indicated that this proposed amendment would level the playing field between resident and non-resident employers by ensuring that all employers using South African talent contribute the standard 1% of the employee’s remuneration to UIF and SDL.

Provisional income tax collection from remote workers is too unpredictable, being all too difficult to police, meaning, quite simply, that SARS could be losing out on tax revenue. By requiring PAYE from foreign non-resident employers, SARS can guarantee the collection of revenue.

In short, the smooth sailing that remote workers, digital nomads, and their foreign employers have been enjoying will end if, and most likely when, the Treasury implements these changes.

Prepare to Buckle-Up

While these amendments are still under public comment, the chances of the Treasury implementing these changes are high. Digital nomads and remote South African workers working for foreign non-resident companies will need to buckle and prepare for some tricky times ahead while their employers begin navigating these new complex and burdensome requirements.

To better comply with these requirements, foreign non-resident employers can consider seeking the assistance of one of the many local companies that offer Employer of Record Services, which can take these burdensome requirements off their hands.

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