SA Tax & UIF Rules Same for Foreigners except in Special Circumstances

By Ron Warren, executive chairman of payroll software company NuQ

Johannesburg, June, 2010 – Despite confusion that exists surrounding tax rules for foreigners, all foreigners who render services in South Africa are liable to pay South African tax on the remuneration received for work, regardless of citizenship, place of residence, race or gender.

Tax rules

Tax rules are no different for a foreigner from the payroll rules applicable to a South African.  It does happen that sometimes employers offer a foreigner a “net of tax” salary, as the foreigner does not know how much SA tax he would be liable for, and wants to compare his SA earnings with what he would earn after tax at home. 

In this case, the tax paid on his behalf by the South African employer would be a taxable fringe benefit (a payment made on behalf of the employee), and the payroll would have to calculate the “tax on tax” correctly.  It is perhaps worth mentioning in this connection that the SARS guide on how to calculate such “tax on tax” is incorrect, and might result in too little tax being deducted.

Tax Exemption

It is also worthwhile noting that exemption for non South African residents is only applicable if the country in which the employee resides has entered into a tax treaty with SA, and that tax treaty is similar to that entered into between the UK and SA, whose terms are outlined below. 

All the tax treaties contain virtually identical provisions.

The terms of the UK/SA tax treaty are as follows.  For ease of understanding, I have used an example of a UK resident working temporarily in SA.

If all 3 conditions listed below are met then the UK resident is exempt from paying SA tax and exemption is granted.

·         the UK resident is present in SA for less than 184 days in any 12 month period starting or ending in the SA fiscal year (March to February); and

·         the remuneration is paid by or on behalf of the UK employer; and

·         the remuneration is not borne by (ie charged to) a permanent establishment which the UK employer has in SA.

UIF rules for foreigners

With regard to the law regarding UIF rules for foreigners, every employee in SA is liable to contribute to (and claim benefits from) the Unemployment Insurance Fund, regardless of nationality or citizenship.  However, there is one exemption, as follows –

Where an employee has entered South Africa in terms of a contract of service which requires the employer to repatriate that person on completion of that contract, or where the employee is required by law or by the contract to leave South Africa on termination of employment.

Note that the above exemption does not refer to foreigners (in fact, that term is not used in the UIF Act).  It refers to any person who enters South Africa under the terms set out.  Thus, it could apply to a South African citizen who is resident outside South Africa, but who returns to South Africa to work in terms of a contract as described.

For further information please visit: www.nuq.co.za

Issued by                                             Kisha Reader at Tin Can

                                                             (083) 391-6124

                                                            kisha@tincan.co.za