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How remote work affects your tax obligations

Learn about the tax implications that South African individuals need to consider when working remotely, including residency status, employment income, and self-employment. Stay informed and ensure compliance with the relevant tax regulations to avoid any potential penalties.

The taxman is like your shadow: Whether you’re working from South Africa for a company abroad or vice versa, it follows you everywhere.

As remote working grows in popularity, staying clued up about tax variables, implications, and sneaky caveats is critical to avoid penalties.

Here are some of the tax biggies for remote employees and their employers to consider:

It’s all about the source of income

South Africa’s residence-based tax system requires all residents to pay tax on global income, regardless of where it was earned.

You are classified as a resident for tax purposes if you are a natural person ordinarily resident in South Africa, or if you pass the “physical presence” test, i.e., you were physically present in South Africa for:

  • 91 or more days during the current tax year,
  • 91 days during each of the five tax years before the current year, or
  • 915 days in total for the previous five tax years.

In other words, if you live in SA but are employed by a company based in the UK, your income may still be taxable in SA.

Sound complicated? Let’s break it down:

  • Employment income: If you earn employment income from a company abroad, you are exempt from tax for the first R1.25 million, if you spend a minimum amount of days outside the country in a tax year.
  • Capital gains: Foreign capital gains are fully taxable if you’re a South African resident.
  • Rental income: Any rental income you receive or accrue as a resident is taxable. However, insurance, bond interest, rates, taxes, and other expenses are tax deductible.
  • Self-employment: Any commission, trade income, professional fees, or other income you receive is taxable, regardless of whether your clients are based in SA.
  • Dividends: A 20% withholding tax applies to resident companies paying dividends, and the same goes for foreign companies paying dividends for shares listed in SA. However, if you’re a South African resident who owns more than 10% equity shares and voting rights of the foreign dividends, you’re exempt from the withholding tax.
  • Interest: Any interest you receive or accrue to someone is taxable if you’re an SA resident. However, local interest of up to R23,800 (R34 500 for taxpayers 65 and older) is exempt from tax.

Does SA make provisions for foreign tax relief?

Section 6quat of the Income Tax Act lets you claim a foreign tax credit if you are a south African tax resident, who is an employee and renders services outside the republic. However, this Section only applies to employees who are outside the republic for longer than 183 full days in any 12-month period as well as a continuous period exceeding 60 full days outside South Africa in the same period of 12-months..

Only the first R1.25 million of foreign employment income earned by a tax resident will qualify for exemption. Any foreign employment income earned over and above R1.25 million will be taxed in South Africa, applying the normal tax tables for that particular year of assessment..

Every situation is different

The tax situation for remote work is filled with complex rules and legislation, so consider all the variables before placing yourself in a tax box that makes you vulnerable to penalties.

The best option? Run to your nearest tax practitioner before making a move. If you’re already in a remote working agreement with a foreign employer, consider chatting to a tax practitioner to ensure you’re on the right tax train.

Or do your own research. SARS has everything you need to know about foreign employment income.

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