South Africans who earn their income in a foreign currency and their employers will soon face a lot more red tape with the South African Revenue Service (SARS), which could discourage international companies from hiring South Africans.
The National Treasury has proposed new foreign exchange regulations for South Africans who work for a foreign company and earn their income in a foreign currency.
Previously, when a South African was earning money abroad, it was their responsibility to pay provisional tax in South Africa.
For example, a taxpayer who earned dollars in an offshore account because they did services for an American company had to declare this money to SARS, convert it to rands and pay their taxable income from these rands.
However, the National Treasury thought this system could simply be sidestepped by taxpayers not declaring their forex earnings.
Therefore, foreign companies employing South Africans now have to form a sub-branch in South Africa, register via the Companies and Intellectual Property Commission, and register for pay-as-you-earn tax on their employee’s behalf.
The red tape that comes with these new regulations could see foreign companies go one of two ways.
Firstly, they could say, “South Africans were great and cheap, but unfortunately, the red tape has made this too onerous for us, and we have to cut ties with South African employees.”
Alternatively, foreign companies enter the market and register in South Africa as the South African leg for foreign entities, becoming essentially ‘intermediaries’ that will handle SARS and the National Treasury on behalf of foreign companies.
South African employees of these companies could also find ways to simplify the new regulations.
For example, the employees could register a company in South Africa and outsource themself as a company to foreign entities, which would sidestep the proposed regulations.
These regulations have not been passed yet and are still open for comment – 2023AnnexCProp@treasury.gov.za/ acollins@sars.gov.za
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