Independent contractor in South Africa?

SARS is cracking down on foreign employers and their local independent contractors, but help is available

If National Treasury has its way, foreign companies hiring South Africans as remote workers may soon find themselves in a legislative compliance pickle with SARS, which could see them become bogged down in red tape that negatively impacts their business operations.

According to Nicol Myburgh, Head: CRS Employment Services (CROS), an affiliate of CRS Technologies, the government department is seeking to align the obligations for foreign employers with that of their South African counterparts.

“Currently, foreign employers do not have to deduct PAYE (pay as you earn) from the salaries of their South African employees, as the employees can either pay the PAYE themselves when they submit their annual tax returns, or they can invoice the employer as an independent contractor and pay the PAYE as a provisional taxpayer,” he explains. “Foreign employers are, however, required to pay the one per cent skills development levy as well as employer contributions to the Unemployment Insurance Fund.

“South African employers, on the other hand, are required to register as an employer, and are accountable for PAYE deductions, as well as SDL and UIF contributions to SARS.”

To resolve this inconsistency, government is proposing that foreign employers be required to register as employers with SARS and that PAYE deductions be included among their payroll compliance obligations. Employees who choose to work as independent contractors will need to comply with the legal definition of an independent contractor or be classified as an employee and have PAYE deducted from their salaries.

All businesses registered as SARS employers, whether foreign or local, are also required to have a CIPC registration number, an income tax registration number, a South African bank account and run a South African payroll.

“Depending on the nature of the foreign business, and whether its South African workforce consists of full-time employees or independent contractors, meeting these requirements can become an administrative and bureaucratic nightmare.”

The solution, says Myburgh, is to partner with a South African employer of record, such as CROS, which specialises in the provision of employment-related services to organisations in a foreign country.

“By engaging an employer of record, foreign employers can ensure that they remain compliant with South African tax regulations, minimise their tax liabilities, and reduce the administrative burden of running payroll and managing tax-related tasks. This removes the requirement to register them for tax in South Africa, CIPC registration and obtaining the necessary CIPC and tax identification numbers. We also monitor tax deadlines, calculate the tax deductions, SDL and UIF contributions, and prepare and file the necessary returns and reports with SARS on the foreign employer’s behalf.”

Myburgh advises foreign employers not to wait until the proposed legislation is enacted before engaging the services of an EOR.

“Not only is it the best way to ensure that you remain up to date with any changes to tax legislation and regulations in South Africa, but partnering with an EOR ensures ongoing access to expert advice and support on any payroll, tax and compliance-related issues.

“Knowing that their South African employees are legally taken care of gives foreign employers the peace of mind to focus on growing their business,” he concludes.