The problem that most foreign persons in South Africa face is that local employers and tax practitioners (often the South African Revenue Services as well!) want to treat you like normal South Africans. This is not correct and in your best interest. Depending on your circumstances, different rules apply to you and these rules will always be to your benefit.
Planning for Expatriates in South Africa
Planning for expatriate employees going to South Africa is of the utmost importance. It will pay you to go to lengths to ensure that you are not tax resident in South Africa. Should you have no choice but to become tax resident, it will still be a good idea to know in advance when you will become tax resident and thereby making use of certain planning before you become resident. The work permit class and application should also be carefully considered as this may have an impact on your tax status or, even more concerning for most, impact on your exchange control residency.
Expatriate Tax Obligations
As a non-resident you will pay tax on your South African source income. This means income earned or made by doing or investing something in South Africa. The rules can become quite complex but the following is a good starting point:
• Note that days worked outside South Africa are not taxable in South Africa. Income that you earn when working outside South Africa will therefore be tax free and should your employer have incorrectly withhold PAYE thereon, they should correct their mistake.
• You will not pay any tax on investments outside South Africa. This would include interest, shares speculation gains, dividends, income from property etc. Many people ask whether you pay tax on such income when the money is brought to South Africa. The basis for this question is known as the remittance basis of taxation. South Africa does not operate on a remittance basis. When income is exempt under the source principle, there is no income tax implication. Remitting any income to South Africa has no tax consequence.
Planning Expatriate Pay in South Africa
Expatriate employees coming to South Africa often falls in the pitfall that they let local employers structure their packages like other local employees. This is seldom the best outcome for the expatriate or the employer. The following matters should normally be considered:
• Rand or other currency package
• Where the expatriate will be working
• Who is the employer of the expatriate (applicable where we are dealing with secondments and inter-company transfers)
• Is the expatriate's package guaranteed net or gross
• Relocation allowances
• Residential accommodation provided by the employer is exempt should the accommodation not be the expatriate's "usual place of residence"
What benefit entitlement should the expatriate receive such as car, medical cover, offshore or local retirement funding, home leave, children school costs, security etc.
Expatriate Employment Agreements
The above should be negotiated before the expatriate's employment agreement is signed. Special clauses to give legal effect to the above should be considered and this must be part of the final expatriate agreement. The practice of giving one letter of employment initially, another for the work permit application and then a final one for the tax consequences does not work. Professional tax filing assistance is also a must-have for an expatriate employee. Proper planning and tax preparation really can save a not insignificant amount of taxes.