Tax Considerations for Remote Working Abroad

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Remote working has become the norm in the digital era for many employees. Employees are demanding more flexibility in the way they perform their services, and some employees may even choose to render their services outside the borders of South Africa.

Before allowing employees to work abroad, it is essential to consider whether they may create complications for their employer. Having a remote employee working in another country can create a tax obligation in that country for the employer by virtue of its sudden presence in that country and is called “a permanent establishment”.

To determine whether an employer has a permanent establishment in another country, the following needs to be considered: the length of stay of the employee, their Visa status, the employee’s role and designation, and how the employee renders their services (i.e. from home or whether an office is established).

If an employer has a permanent establishment in a foreign country, the employer may incur unexpected tax liabilities and compliance requirements. A portion of the employer’s profits may be pulled into the taxing net of that foreign country, and the employer may be required to establish a foreign payroll and submit tax returns. If double taxation exists, the employer will then have to claim tax credits in South Africa.

In addition to the employer’s tax liability, the employee may also have unexpected tax consequences. Generally, where a person physically performs employment duties in a foreign country for extended periods, both that foreign country and South Africa will have a right to tax that income, resulting in double taxation. Extended presence may also trigger tax residency in the foreign country, considerably complicating the individual’s tax obligations.

In addition to the tax consequences, employers should also consider other legislation of the foreign country, such as labour laws, requirements to contribute to a social security fund, for example.  Therefore, employers should carefully consider the aforementioned factors before agreeing to allow an employee to render their services abroad. Ensure that the employment relationship is regulated contractually and obtain professional advice in South Africa and the foreign country.

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