What to watch out for if you work for a foreign company

Advances in technology enables you to work remotely from anywhere in the world.

It is therefore no surprise that an increasing number of South Africans now work for foreign companies. However, there are aspects to watch out for.

Graeme Palmer, director at law firm Garlicke and Bousfield, says one of these aspects is that foreign employment income for someone who lives in South Africa is subject to income tax in South Africa, unless a tax treaty with the other country gives the other country a right to tax the income, or if the income is specifically exempt from tax in South Africa.

“Currently, where a foreign employer does not have a ‘representative employer’ that pays remuneration to their South African employees, there is no obligation on the foreign employer to deduct employees’ tax (known as PAYE) from the employee’s salary. In this case the employee would have to pay provisional tax on the income to Sars.”

At present only South African employers must deduct PAYE from their employees’ remuneration and pay the tax over to the revenue authorities, he says. However, this is set to change once the Draft Tax Administration Laws Amendment Bill is passed.

“The Bill proposes to remove the distinction between resident and non-resident employers. This will mean that any employer, whether resident or non-resident, will be required to deduct PAYE from its South African employees’ remuneration and pay the PAYE over to the revenue authorities.”

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Check for foreign employer’s place of effective management

Palmer warns that foreign employers with top level management working remotely in South Africa must keep the risks of shifting the place of effective management of their company to South Africa in mind.

“A foreign company that has its place of effective management in South Africa will be regarded as a resident and subject to South African tax. One of the factors in determining a company’s place of effective management is where the top-level management are located.”  

He says sometimes South African residents are hired to work remotely for foreign companies as independent contractors rather than employees, enabling the foreign business to avoid the South African labour and tax law obligations that would ordinarily apply.

“However, if the South African resident providing the services to a foreign company is under the control or supervision of that foreign company, the South African resident is in all likelihood not an independent contractor, but an employee,” he warns.

Navigating the tax consequences of global mobility can be challenging for employers as well as employees and Palmer advises that foreign employers who hire remote workers in South Africa and South Africans who work for foreign companies seek tax advice first.

Michael Opperman, CEO of Omni Labour Consultants, says South Africans working for foreign companies must also keep in mind that they do not have the same labour rights as other South Africans if they signed their contract of employment with one these companies and it has no assets in South Africa.