How Employers Can Manage Employee Tax Deductions for Non-Residents in South Africa
- Last updated: January 30, 2025
Managing employee tax deductions is never a walk in the park, but in South Africa, the task is known to be especially complicated. This is partly because the South Africa Revenue Service is known to be strict, and partly because the legislation itself is rather complex, particularly where non-residents are concerned. Because then it’s a matter of overlapping legislations as well as of international labour law. If your company has already expanded into South Africa or is planning to do so, understanding how to manage employee tax deductions for non-residents is crucial for compliance and operational efficiency.
In this article, we will explore some key regulations and principles regarding taxation for non-residents in South Africa and will provide some important steps you can take to help your business stay compliant with local tax laws.
Understanding South Africa’s Tax Residency Rules
- Ordinary Residence Test: This test applies to individuals who have made South Africa their “home” and are considered tax residents. They are taxed on their worldwide income.
- Physical Presence Test: This test is for individuals who do not meet the ordinary residence test but spend a significant amount of time in South Africa. A non-resident under this test is someone who spends fewer than 91 days in South Africa in each of the preceding five years.
What Taxes Do Non-Residents Pay in South Africa?
Non-resident employees in South Africa are subject to the same income tax rates as South African residents, but only on income derived from South African sources. Key taxes to be aware of include:
- Income Tax: Non-residents are taxed on their South African employment income at the applicable individual income tax rates. For example, for the 2023 tax year, South Africa’s individual income tax rates range from 18% to 45%, depending on the amount of income.
- Tax on Foreign Employment Income: Non-residents who are working temporarily in South Africa may qualify for tax relief if they meet certain conditions. South Africa has a “foreign employment income” exemption which may apply if the employee works outside South Africa for a continuous period of 183 days or more, of which at least 60 days must be spent in South Africa. However, this exemption is typically only applicable to South African residents working abroad, not to non-residents.
Provisional Tax: Non-residents may also be required to make provisional tax payments if they are earning income from South African sources but do not have an employer withholding tax on their behalf.
How Employers Can Manage Tax Deductions for Non-Residents
Managing employee tax deductions for non-residents requires employers to stay compliant with South African tax law while ensuring efficient payroll processing. Here are the key steps for managing tax deductions for non-residents:
- Determine the Tax Residency Status
Before processing payroll, it is important to determine whether the employee is a tax resident or non-resident. This can be done by assessing their ties to South Africa, the duration of their stay, and their work location. It is highly advisable to consult with a tax professional or legal advisor to verify residency status and to ensure the correct tax treatment. - Correctly Withhold Income Tax
For non-residents, employers are required to withhold income tax at the appropriate rates on South African income. Employers must ensure that they are withholding taxes on earnings derived from South African sources only and not on foreign income. It’s essential to regularly update tax rates to reflect any changes announced by SARS. - Ensure Compliance with Tax Exemptions and Relief
Non-residents may qualify for certain exemptions or reliefs, such as the foreign employment income exemption or double tax agreements (DTAs) between South Africa and other countries. Employers should review the DTA between South Africa and the employee’s home country to ensure that the correct exemptions are applied and that no double taxation occurs. - File and Remit Taxes to SARS
Employers must ensure that they are filing the appropriate tax returns and remitting the withheld taxes to SARS in a timely manner. Employers must also issue a certificate at the end of the tax year, which shows the total amount of income earned and tax paid. Non-residents may be eligible for a refund or adjustment if they have overpaid taxes due to incorrect withholding. It is highly advisable to outsource the duty of tax compliance, and with it, the payroll function to avoid any costly compliance mistakes in the future. - Track Employee Travel and Duration of Stay
Non-resident status can change based on the employee’s duration of stay in South Africa. Employers must track the days spent in the country by their non-resident employees to ensure that the correct tax deductions are made. If an employee’s status changes from non-resident to resident, different tax treatment may apply, and it’s important to adjust payroll accordingly.
Consider a Professional Payroll Provider
Managing tax deductions for non-residents can be complex, and mistakes can lead to costly penalties as well as a damaged employer reputation. Working with a payroll provider familiar with South African tax laws can help ensure that your business stays compliant. A payroll provider can also assist with calculating deductions, processing tax filings, and staying updated with any tax changes.
Choose the right payroll partner in South Africa
As your business grows and expands into South Africa, partnering with an experienced payroll provider like Africa HR Solutions can help streamline your payroll process, reduce administrative burdens, and ensure compliance with all tax obligations. Whether you’re hiring your first non-resident employee or managing a growing team, taking the time to understand and manage tax deductions correctly is essential to maintaining a smooth and successful operation in South Africa.
Need help navigating the complexities of employee tax deductions in South Africa? Contact us today to find out how our payroll solutions can support your business in staying compliant and efficient in your operations.
