“As world economies reopen, local enterprises can finally source expatriate talent to fill the persistent skills gaps keeping them from achieving their strategic objectives,” says Tanya Tosen, Master Mobility, Tax and Remuneration Specialist at Tax Consulting South Africa.
However, warns Tosen, organisations need to treat foreign expatriates like the assets they are, carefully administering their reward package, payroll and tax matters to the mutual benefit of employer and employee.
Attractive reward package
To entice the best foreign skills, organisations must know how to structure an attractive total reward package. This can’t stop at an internationally competitive basic salary and benefits. It must be augmented with a meaningful corporate culture, a sincerely ethical world view, a work environment centred on well-being, a progressive performance management style, and much more.
“Today’s global employees will hold out for greener pastures if an employer’s offer doesn’t meet their expectations,” says Tosen.
Expatriate packages are generally expensive and withholding tax is costly to employers. Yet, without being aware of it, they might be paying more in tax than they legally need to. Having a reward professional review and restructure an employee’s tax could yield significant savings for both parties.
“Expatriate remuneration or tax specialists are trained to identify tax inefficiencies and leverage several proven structuring mechanisms to reduce excessive tax,” says Tosen.
Foreign employees who physically render their services in South Africa must pay tax to SARS and their employer must withhold the required PAYE. Under certain conditions, they may also become residents for tax purposes and their tax obligations will change accordingly. In effect, this could mean they may still be liable to the tax authority in their home country but would also need to declare their worldwide income in South Africa.
“Employers must adapt promptly and offer support in these complex tax matters because an expatriate’s non-compliance can easily become their problem,” advises Tosen.
Strong payroll function
Setting up a payroll becomes much more complicated if the expatriate has transferred from a foreign division of the employer’s company. This may require an additional ‘shadow’ payroll to be set up in the country that does not pay their basic salary, where income, benefits and deductions are shared between the two to calculate the correct withholdings in each jurisdiction.
“Employers must ensure their payroll can cater to complex and time-sensitive taxation scenarios, backed by expertise in multi-jurisdictional tax requirements,” says Tosen.
As registered taxpayers, expatriates must submit an accurate tax return accompanied by an employer issued IRP5 to SARS by its prescribed deadline. The return must link back to the employer’s payroll, match the PAYE deductions and agree with their biannual break-even tax reconciliations.
“Foreign nationals will need assistance with the country’s complex tax requirements as well as help liaising with their home tax authority in providing the necessary returns to them,” says Tosen.
Engaging a service provider
An employer’s payroll or HR team may be uncertain of the legal requirements or best practices for remaining compliant while offering the support their expatriate employee needs.
Developing an attractive reward package, structuring tax optimally, offering tax support, setting up a responsive payroll and assisting with tax returns are only the tip of the iceberg. A total reward package that attracts top expatriate skills should be a frustration-free employee experience that must be carefully designed and executed.
“Instead of taking risks, organisations should engage an expert partner in expatriate remuneration and tax – one with a strong legal team for that extra layer of protection and assurance,” says Tosen.