South Africa: certain foreign employers to be required to account for payroll taxes from 2024 

Wed 24 Jan 2024

Currently, the provisional tax system ensures that when a non-resident employer of individuals working in South Africa has no representative employer in South Africa, their employees’ tax obligation is settled in the form of a provisional tax payment by the employee, not the employer. 

The requirement for an employer to deduct and remit employees’ tax (Pay-As-You-Earn) (PAYE) only applies to an “employer who is a resident” or has a South African “representative employer”.

Non-resident employers of South African based employees are, therefore, under no obligation to deduct and withhold PAYE unless remuneration is paid or is liable to be paid by a South African resident representative employer that is an “agent of the non-resident employer having authority to pay remuneration”.

Change starting from 2024

In the first draft of the Tax Administration Laws Amendment Bill, 2023 (TALAB) the National Treasury of South Africa proposed that all non-resident employers who have employees working from South Africa would be required to register for PAYE.

However, following feedback from stakeholders, the National Treasury has provided some relief and proposed that the obligation to register will only fall on those non-resident employers that have a permanent establishment (PE) in South Africa.

Impact on non-resident employers with employees in South Africa

The date of promulgation of the proposed legislation is January 2024. 

All non-resident employers with a PE in South Africa must be registered from January 2024 as an employer with the South African Revenue Service (SARS) and deduct PAYE from remuneration paid to their employees.

In addition to PAYE withholding, non-resident employers with a PE in South Africa would have an obligation to pay skills development levies (SDL) and make unemployment insurance fund (UIF) contributions to SARS, subject to very limited exemptions.

Non-resident employers without a PE in South Africa would not be required to withhold PAYE. 

Where a non-resident employer has no PE in South Africa the obligation to withhold PAYE will only arise if there is a representative employer in South Africa.  In that case the obligation to withhold PAYE falls on the representative employer.

Although there is no obligation to withhold PAYE for such non-resident employers without a South African PE, they will still be obliged to pay a Skills Development (SDL) and contribute to the Unemployment Insurance Fund (UIF).  Paying SDL to the SARS requires an employer registration whereas UIF must be paid to SARS (if the employer is registered with SARS) or directly to the fund (if the employer is not registered with SARS). A SARS employer registration for non-resident employers with no obligation to withhold PAYE has been a practical challenge to date.

The non-resident employer may also be required to register in terms of ‘The Compensation for Occupational Injuries and Diseases Act’, 130 of 1993 (COIDA).  This is a fund to which employers contribute that mainly provides for compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment, or for death resulting from such injuries or diseases.

Once the legislation is in force, non-resident employers with a PE in South Africa will, amongst other things,  have to register and submit monthly returns and bi-annual reconciliations.

Non-compliance and late payments will result in the employer being subject to penalties as well as interest.

Practical Considerations

To register as an employer with SARS, a non-resident employer is required, among other things to

• register with the Companies and Intellectual Property Commission (CIPC) as an external company and obtain a registration number.
• obtain a SARS income tax registration number; and
• have a South African bank account.

Many non-resident employers with employees in South Africa may not be aware that they are required in terms of the local Companies Act to register as an external company with CIPC within 20 business days of being a party to an employment agreement within South Africa.

Setting up a local bank account may be challenging without a local representative, but registration as employer will require an appointment of a representative taxpayer resident in South Africa, such as a local director.