Registration required for non-resident employers: PAYE
Registration required for non-resident employers: PAYE
Subject to certain exclusions and exemptions, income earned for services rendered in South Africa is generally subject to South African employees’ tax. The system where employees’ tax is deducted and accounted for monthly is generally referred to as Pay-As-You-Earn (PAYE). PAYE is therefore a withholding tax on employment income, which will be offset against the employee’s final income tax liability for the relevant year of assessment.
At a glance
- Income earned for services rendered in South Africa is generally subject to South African employees' tax (PAYE), which is a withholding tax on employment income.
- The obligation to withhold employees' tax rests on the employer, whether they are a resident or non-resident of South Africa, and must be paid to SARS by the seventh day of the following month.
- Non-resident employers who pay remuneration to employees in South Africa will be required to register as employers in South Africa and withhold PAYE, as well as be liable for skills development levies and unemployment insurance contributions if applicable. Foreign employers should ensure compliance to avoid penalties and interest.
The obligation to withhold employees’ tax is provided for in Paragraph 2 of the Fourth Schedule to the ITA which reads as follows:
(a) employer who is a resident; or
(b) representative employer in the case of any employer who is not a resident
… who pays or becomes liable to pay any amount by way of remuneration to any employee shall, unless the Commissioner has granted authority to the contrary, deduct or withhold from that amount … by way of employees’ tax an amount … in respect of the liability for normal tax of that employee … ”.
In terms of the above provision, it is clear that South African-sourced employment income that a resident or non-resident of South Africa earns is subject to employees’ tax if it is paid by an employer who is a tax resident in South Africa. Further, where the employer is not a resident of South Africa, employees’ tax must be deducted either by an agent or representative who has the authority to pay the remuneration to the non-resident employee.
The employees’ tax so withheld must be paid over to SARS as partial (or full) payment of that employee’s annual tax liability by no later than the seventh day of the next month. Should the employer fail to pay the amount due to SARS by this date, the employer will be subject to a 10% penalty as well as interest, unless a deferral arrangement is in place. The amount withheld is calculated according to the employee’s level of earnings using the applicable tax rate.
The above provision, however, arguably does not adequately cater for a scenario where the employer is not a resident and does not have an agent or a representative in South Africa for employees’ tax purposes. In this context, National Treasury has proposed in the Budget that it will amend various provisions in the Act to ensure that non-resident employers who pay remuneration to employees who render services in South Africa register as such in South Africa, notwithstanding the fact that they may not have a representative or agent in South Africa.
Therefore, clarity will be provided that non-resident employers will also be held liable to withhold (or deduct) employees tax from remuneration that is paid to its employees in South Africa. The relevant amendments will also ensure that non-resident employers are also liable for skills development levies and unemployment insurance contributions where applicable.
The Minister of Finance (Minister), however, does not expound on how non-residents will be able to register. As it stands, registration as an employer must be done through eFiling.
Having regard to the above, it is recommended that foreign employers who pay remuneration to employees rendering services in South Africa register as employers with SARS and start withholding PAYE as contemplated in the Fourth Schedule to the ITA to avoid incurring any penalties and interest being imposed by SARS. Although the obligation to deduct PAYE rests on the employer, the income tax liability still remains for the account of the employee. Therefore, employees earning a remuneration in South Africa from non-resident employers should also ensure that their employers are duly registered as employers in South Africa and are remitting the correct amount of PAYE on their behalf to SARS.
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