Tax considerations when employees work remotely abroad

SAID / Belasting verwikkelinge
Mar 22, 2022
Die belangrikheid van goeie korporatiewe bestuur
Mar 22, 2022

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, with some employees even choosing to render their services outside the borders of South Africa.

Before allowing employees to work abroad, it is essential to consider whether their employment abroad will create complications for you, their local employer. Having a remote employee working in another country can create a foreign tax obligation for the employer by virtue of its sudden presence in that country, 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.
  • How the employee renders their services (i.e., from home or from an established office).

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

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

In addition to the tax consequences, employers should consider all other legislation of the foreign country, such as labour laws and the requirement to contribute to a social security fund.

Employers and employees alike should carefully consider the aforementioned factors before agreeing to the rendering of services abroad. To ensure that the employment relationship is regulated contractually, it is highly advised to obtain professional advice in South Africa as well as the foreign country.

Get in touch with Frances Burger at frances@asl.co.za to help you and your employees make the most of opportunities abroad.

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