A Major Controversy Over Foreign Currency in SA
The National Treasury has proposed new tax legislation affecting overseas firms and remote workers, which experts say will cause more harm than benefit. According to Tax Consulting SA, if proposed changes to the Employee’s Tax Schedule of Income Tax are implemented, foreign employers will be required to register for and withhold Pay-As-You-Earn from 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 would add tax compliance hurdles to the sector and its stakeholders,” the consultancy firm said. Among other things, Tax Consulting noted that these new requirements would place additional burdens 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.
South Africa has emerged as a hotspot for remote work. The country has a low cost of living and pleasant weather, and remote workers can earn in dollars or pounds – until recently. According to Deel, a global payroll and HR platform, the logic behind National Treasury’s new proposed tax laws affecting remote workers should be questioned.
“We welcome any legislation that cracks down on the non-payment of taxes, but we question moves that may negatively impact the ability for remote workers who earn in foreign currencies to live and work in South Africa,” says Ronny Levitan, Head of Deel in South Africa. According to Levitan, South Africa is desperate for foreign investment, but actions that limit international companies’ capacity to pay in foreign currencies may have the unintended consequence of diminishing global interest in South Africa, limiting local talent’s potential to be exposed to multinationals.
“Whether they work remotely or not, economically active employees are crucial to the economy, and thousands of remote workers who earn in foreign currency have their earnings deposited into local bank accounts. “They pay tax and contribute to the fiscus by paying VAT and other everyday costs of living, be it food, entertainment, accommodation, or transport,” said Levitan. He also mentioned that several other nations, such as Spain and Portugal, are making it more appealing for remote workers.
If South Africa wishes to compete on that stage, it must create a welcoming atmosphere for digital nomads rather than making it impossible for them to make South Africa their location of work and leisure. “Similarly, foreign employers who see South Africa as a skills and talent location should be encouraged to grow their presence in this market.” Expat Insider, one of the world’s largest and most cited surveys on living and working abroad, recently found that South Africa ranks in the bottom 50% or lower across several metrics, including quality of life, travel and transit, healthcare, safety and security, salary and job security, and work culture and satisfaction.
Despite this, Levitan claims that there is still tremendous interest in working in this nation from both global firms and local people due to its comparatively low cost of living, decent lifestyle options, and great weather. Many remote workers are paid based on global compensation benchmarks, which are frequently much more than local equivalents, and they benefit from earning in dollars, pounds, or euros.
“In the last six months, 78,4% of remote independent contractors in South Africa on Deel’s platform withdrew their salaries in local currency. As most of these work in the tech and IT sectors and earn dollar-based salaries, they often fall into high individual tax brackets, which is a good thing for tax revenues,” he added.
Instead of limiting South Africa’s potential as a remote working destination, Levitan contends that the country should encourage competent local employees to stay in the country rather than seek employment elsewhere. According to Levitan, this is closely related to the deliberate establishment of an atmosphere that entices corporations wishing to grow their workforces through remote talent. He and other experts have stated that the proposed tax laws in their current shape are not conducive to foreign engagement.
CPI Payroll Support Team