South Africa: Proposed amendments to requirements for non-resident employers to withhold employees’ tax

The Tax Administration Laws Amendment Bill that was issued on 1 November 2023 (originally released 31 July 2023, read TaxNewsFlash) would require non-resident employers to withhold employees’ tax, but only if such non-resident employers conduct business through a permanent establishment (PE) in South Africa. 

The obligation to deduct employees’ tax would also expand to include all representative employers (previously limited to representative employers of non-resident employers).

From January 2024 (anticipated date of promulgation of the proposed legislation) all non-resident employers with a PE in South Africa must be registered as an employer with the South African Revenue Service (SARS) and deduct employees’ tax (pay-as-you-earn (PAYE)) from remuneration paid to their employees. The obligation to withhold PAYE arises when the employee has a liability for normal tax, which occurs if the individual earns annual taxable income exceeding the tax threshold (R95 750 in respect of the 2024 South African tax year). 

In addition to PAYE withholding, non-resident employers with a PE in South Africa would have an obligation to pay skills development levies (SDL) and make unemployment insurance fund (UIF) contributions to SARS. 

Non-resident employers without a PE in South Africa would not be required to withhold PAYE.

When a non-resident employer without a PE in South Africa has a representative employer in South Africa, the obligation to withhold PAYE falls on the representative employer. A representative employer, in the case of a non-resident employer, is defined as any agent (who resides in South Africa) of such employer, having the authority to pay remuneration. Thus, a representative employer only exists if that person, who resides in South Africa, has the authority to pay remuneration to the employee on behalf of the non-resident employer.

Once the legislation is promulgated, non-resident employers with a PE in South Africa or their representative must comply with local payroll compliance obligations, which include the submission of monthly payroll tax returns with payments to SARS and issuing annual employees’ tax certificates by the relevant deadlines. Non-compliance or late payments would result in the employer being subject to a 10% penalty as well as interest.

• Register as an external company in South Africa
• Assess whether a PE has been established in South Africa
• Register with SARS and payroll administration

Read a November 2023 report [PDF 389 KB] prepared by the KPMG member firm in South Africa