Housing is a popular benefit provided by employers to their expatriate employees. Fringe benefits tax normally arises when non-cash benefits are paid to employees. However, certain exemptions may apply to expatriate housing benefits. The many changes to the applicable tax laws over the last few years, have lead to the misconception that expatriates will automatically enjoy a tax free housing benefit for the first two years of their stay. This is not necessarily the case and employers need to consider this carefully when deducting Pay-As-You-Earn.
No housing fringe benefit will arise to the extent that the expat has been in South Africa for less than two years and the 'rental value' of the accommodation is less than R25 000 per month. The expat must not have been physically present in South Africa for more than 90 days in the year before the two-year period began.
Even though an expat employee is here for less than two years, an employer would still need to calculate the 'rental value' to determine whether the R25 000 limit is exceeded. The 'rental value' is either the actual rentals paid by the employer or an amount determined with reference to a formula. The formula is based on factors such as the employee's remuneration and the size of the accommodation.
In most cases the employer is required to apply a 'rental value' equal to the higher of actual rentals and the formula amount. In some cases though, it has to apply the formula amount for example where the employer owns the accommodation or it is common for employers in a particular industry to provide housing to employees. Should the formula provide an unfair result the employer can apply to the South African Revenue Service to have the amount reduced.
In our experience employers often get this wrong, which can lead to penalties being imposed!
Ruaan van Eeden, Senior Associate, Tax