South Africa may soon see its first batch of remote workers entering the country on the newly created species of visitor’s visa aimed at foreign employees.
Following the draft published earlier this year, the amendments to the Immigration Regulations which, among other things, introduce the new ‘digital nomad visa’ in South Africa, have come into operation with effect from 28 March 2024.
The promulgation of the Second Amendment of the Immigration Regulations (Second Amendment) in the Government Gazette comes as a surprise, one day before the closing date for public comments on the draft version. The timing raises the question whether any comments were considered by the Minister of Home Affairs, who afforded the public until 29 March 2024 to make written submissions.
The Second Amendment is identical to the draft released in February. For our comments on the draft version, see our previous newsflash here. As a reminder, among the changes to immigration laws, the amendments introduce a species of visitors visa that may be issued for up to three years in circumstances where a foreigner conducts work for a foreign employer on a remote basis and earns no less than the equivalent of ZAR 1 million per annum.
One of the issues flagged when the draft was published was the proposal for foreign employees working in South Africa to be exempted from registering with the South African Revenue Service (SARS) if their visa is issued for a period of less than six months in a 12-month period. Although this exemption only deals with the tax compliance obligation to register as a taxpayer and submit income tax returns, this effectively provides an income tax exemption for these individuals. As this exemption is not currently provided for in the Income Tax Act, 1962 (ITA), it would require an amendment of the ITA.
With respect to the individual’s actual tax liability, the position is currently as follows: An employee who is tax non-resident (which ‘digital nomads’ would generally be) would be subject to income tax on their income from a South African source. It is generally accepted that the source of remuneration would be where the services are rendered. The employees would thus, in principle, be subject to income tax on their remuneration, to the extent that it relates to services rendered in South Africa.
The ITA does not provide an exemption for remuneration if the person is in South Africa for less than six months. However, in terms of most double taxation agreements (DTAs), South Africa would not be entitled to tax the remuneration earned by a non-resident employee if (a) the person works for a non-resident employer; (b) the person is present in South Africa for less than 183 days in a 12-month period; and (c) the costs of the remuneration are not borne by a permanent establishment which the employer has in South Africa.
Accordingly, while South Africa would not be entitled to tax digital nomads who comply with the conditions for treaty relief as referred to above, the same does not apply to employees who are tax resident in a country which has not concluded a DTA with South Africa.
In the absence of an amendment to the ITA, digital nomads who are present in SA for less than six months but who cannot rely on DTA relief, would thus in principle still be liable to pay income tax on their remuneration. Unless the ITA is amended to provide for such an exemption, the Second Amendment would create the conundrum that a digital nomad may be liable to pay income tax in South Africa but is exempted from submitting income tax returns.
Even the tax compliance exemption provided by the Second Amendment would require further action from SARS. Each year, at the beginning of ‘tax filing season’, SARS issues a notice specifying the taxpayers who must submit returns for such tax year. In terms of the notice in respect of the 2023 year of assessment, non-resident employees earning more than ZAR 1 million per year would have to submit returns. As the Second Amendment applies from 28 March 2024, this falls in the 2025 tax year and the 2025 SARS notice (when issued in 2025) will have to provide for this exception to ensure its effectiveness.
In addition to the tax implications for the foreign employee, there may also be consequences for the foreign employer from a tax perspective, most notably the risk that employees who work remotely could trigger a taxable presence (and thus a corporate tax liability) for the foreign employer in South Africa.
As indicated in our previous articles, foreign employers are therefore encouraged to seek advice from a tax perspective, as well as on the corporate and employment law implications before permitting employees to work in South Africa on the new visa.
While the introduction of the digital nomad visa is a step in the right direction, many foreign employers would remain reluctant to permit their employees to work in South Africa, until the corporate tax, employment law and company law risks are addressed.
Source:techfocus24