South African tax residents working abroad are currently exempt from income tax if they are abroad for at least 61 days and a total of 184 days in a 12-month period.
“If South Africa has a double taxation agreement with the host country and the individual is physically present for 184 days or more in a calendar or tax year, or the salary was recharged to an entity in the host country, or the costs were borne by a permanent establishment in the host location, the income is only subject to tax in the host country,” says Shohana Mohan, committee member of the South African Institute Chartered Accountant (Saica) employees tax and expatriate tax sub-committee.
Benefits and allowances received in-country such as residential accommodation and the use of motor vehicle are currently also exempt from South African tax. This exemption aims to avoid double taxation. The proposed amendment will have the following consequences:
Employers will have to reconsider their international assignment and tax policies. This could include defining, and distinguishing between, durations and natures of the assignment/secondment, including:
Revisiting international assignment and tax policies can assist employers to manage tax jurisdiction specific risk. Factors that employers should consider include:
With a split payroll, the impact of the provisional tax registration and the total tax payment should be considered.
If an employee gets a medium- to long-term assignement to a host country, and the host country’s marginal tax rate is 35%, and 50% of the salary is borne by South Africa and 50% by the host country, the tax payment is likely to be:
45% x 50% of the salary processed in South Africa
45% x 50% of the salary processed in host country
Less: 35% of the tax already paid/payable in host country
The effect is that 10% of 50% of the host country salary will be included for provisional tax purposes in South Africa.
“Employers should review their international assignment and tax policies to limit the effect on business as the impact of these proposals will be far reaching,” concluded Mohan.