South African VAT, Foreign Companies & Employees

Foreign companies often need to send employees to South Africa for execution of local contracts or to assist South African group companies for various reasons. While South African income tax considerations, permanent establishment concerns and double tax treaty provisions are often considered in detail, the South African VAT (or ‘goods and services tax’ as it is known in many other jurisdictions) consequences are hardly ever taken into account.

South Africa, unlike many other countries in the world, does not have specific place of supply rules. Rather, South African VAT is collected through the vendor registration method or the reverse charge mechanism for imported goods or services. In this article we will focus on the vendor registration method and the possible registration obligation for foreign companies consequent upon employees operating in South Africa.

The vendor registration method:

The vendor registration method requires of any person (whether local or foreign, resident or not resident) to register for VAT in South Africa if that person carries on an enterprise for South African VAT purposes with past or expected sales exceeding ZAR 1 000 000. Such registration gives rise to regular reporting obligations to the South African Revenue Service (SARS) and failure to report where an obligation to do so exists gives rise to penalties and criminal sanctions.

An enterprise will be carried on for South African VAT purposes if a person conducts any activity in South Africa on a regular or continuous basis and in the course of furtherance of that local activity sells either goods or services. What exactly constitute a continuous or regular activity in South Africa for South African VAT purposes is not entirely clear under South African law and each case needs to be considered on its own facts. SARS have, however, expressed a formal view that short bi-monthly visits to South Africa by more than one employee of a foreign company is sufficient to trigger an obligation on a specific foreign company under consideration to register for South African VAT and report to SARS. Similarly, SARS have expressed a view that short training sessions provided in South Africa on software products of a specific foreign company under consideration by employees of that foreign company is likely to trigger a registration obligation under the vendor registration method and concomitant reporting obligations.

Foreign companies sending employees to South Africa should take care to consider South African VAT implications and are advised to seek advice in respect of same. South African VAT implications are not driven by the existence or otherwise of a permanent establishment in South Africa or any South African income tax obligation. In fact, it often occurs that a foreign company has no South African income tax obligation but indeed has a South African VAT obligation.

Easing Travel Between Kenya & South Africa

During the Minister of Home Affairs, Malusi Gigaba’s, visit to Kenya in May this year, plans were made to ease travel between South Africa and Kenya. The discussions were sparked when Kenya’s Amina Mohammed, Cabinet Secretary of Foreign Affairs and International Trade, stated that the applications for clearance to travel, which were to be submitted by Kenyans travelling to South Africa, was a “violation of bilateral the agreement between the countries”. In summary of the discussions the following revelations were made –

  • agreed that study visas will be issued for the duration of the candidate’s study;
  • transit visas for Kenyans transiting through South African airports will be scrapped; and
  • ten-year visas with multiple entries for business travellers and academics who are required to travel to South Africa frequently will be issued.

Q&A: Foreign Employee

Question from Lawrence Thipe

I’m in the ICT sector and need to hire a Foreign Employee from Mozambique. Do you have an idea on what I should do?

Answer

When hiring a foreign national a number of items need to be taken into consideration. The first item to note is to make your offer of employment subject to the obtaining of the necessary work or residency permits.

In this regard, where the candidate is required to enter the country urgently to start working as soon as possible, it is recommended they first apply for a Visitor Visa under Section 11(2) of the Immigration Act of 2002, as amended, which allows the candidate to work for a period of up to three months, and this visa takes 5 – 10 days maximum to obtain. These temporary work permits are obtained hassle-free and is far more preferable that running the risk of being caught as illegally working, arrest for breach of immigration rules etc.

Once done, the candidate may enter the country and start working and you need to start looking at the process of applying for the longer term work visa. The Critical Skills Work Visa is favourable for candidates in the ICT sector and we recommend considering this category first and foremost. We strongly advise against the “General” Work visa category because of the involvement of the Department of Labour which is still at this stage lengthy and often unsuccessful. The candidate will be required to return to Mozambique to apply for the visa and may take 30 days to complete.

In terms of remuneration, the candidate must be paid by South Africa and as such will be subject to South African taxes and in accordance with the double tax agreement between South Africa and Mozambique.

Whilst the employee’s remuneration is subject to tax, there are a number of special planning items that can be considered for expatriate employees, these include tax free accommodation for the first two years and up to R25 000 per month, time outside South Africa is exempt and a log book of travel should be kept to calculate this, one month relocation allowance is exempt, and where he has not worked for the complete year in South Africa a portion of his taxes may be refunded and can be claimed back from SARS on personal tax assessment.

Other items to consider include –

  • Split payroll setup, where a portion of his salary is paid locally and the balance is paid offshore (this is not a tax saving mechanism, but allows employees to receive their money where they need it).
  • A correctly setup South African non-resident bank account.
  • Ideally the candidate should not belong to the South African retirement fund but should rather take out private insurances, including life and disability cover.

There are specialised providers in the market and we can refer you to them, if needed.

Q&A: Foreign Employee

Question from Lawrence Thipe

I’m in the ICT sector and need to hire a Foreign Employee from Mozambique. Do you have an idea on what I should do?

Answer

When hiring a foreign national a number of items need to be taken into consideration. The first item to note is to make your offer of employment subject to the obtaining of the necessary work or residency permits.

In this regard, where the candidate is required to enter the country urgently to start working as soon as possible, it is recommended they first apply for a Visitor Visa under Section 11(2) of the Immigration Act of 2002, as amended, which allows the candidate to work for a period of up to three months, and this visa takes 5 – 10 days maximum to obtain. These temporary work permits are obtained hassle-free and is far more preferable that running the risk of being caught as illegally working, arrest for breach of immigration rules etc.

Once done, the candidate may enter the country and start working and you need to start looking at the process of applying for the longer term work visa. The Critical Skills Work Visa is favourable for candidates in the ICT sector and we recommend considering this category first and foremost. We strongly advise against the “General” Work visa category because of the involvement of the Department of Labour which is still at this stage lengthy and often unsuccessful. The candidate will be required to return to Mozambique to apply for the visa and may take 30 days to complete.

In terms of remuneration, the candidate must be paid by South Africa and as such will be subject to South African taxes and in accordance with the double tax agreement between South Africa and Mozambique.

Whilst the employee’s remuneration is subject to tax, there are a number of special planning items that can be considered for expatriate employees, these include tax free accommodation for the first two years and up to R25 000 per month, time outside South Africa is exempt and a log book of travel should be kept to calculate this, one month relocation allowance is exempt, and where he has not worked for the complete year in South Africa a portion of his taxes may be refunded and can be claimed back from SARS on personal tax assessment.

Other items to consider include –

  • Split payroll setup, where a portion of his salary is paid locally and the balance is paid offshore (this is not a tax saving mechanism, but allows employees to receive their money where they need it).
  • A correctly setup South African non-resident bank account.
  • Ideally the candidate should not belong to the South African retirement fund but should rather take out private insurances, including life and disability cover.

There are specialised providers in the market and we can refer you to them, if needed.

Cabinet Decision To Revise The Immigration Amendment Acts and Regulations

The Department of Home Affairs looks at the unintended consequences and mitigating factors relating to the implementation of the Immigration Amendment Act in May 2014. Changes include considering a long-term Multiple Entry Visa for a period exceeding 3 months and up to 3 years for frequent travellers (for business meetings), new VFS centres in Zimbabwe, United Arab Emirates and Botswana, consider a visa-waiver for India, China and Russia and opening two Business Visa Facilitation Centres in Durban and Port Elizabeth.

Click below to read the full statement issued by Cabinet.

http://www.home-affairs.gov.za:8087/index.php/statements-speeches/687-statement-on-cabinet-decision-on-the-immigration-amendment-acts-and-regulations

Cabinet Decision To Revise The Immigration Amendment Acts and Regulations

The Department of Home Affairs has welcomed Cabinet’s decision regarding the recommendations of the Inter-Ministerial Committee the President had established in August 2015 to look at the unintended consequences and mitigating factors relating to the implementation of the Immigration Amendment Acts (2007 and 2011) and Immigration Regulations, 2014. The law, as amended, will remain with adjustments to be made in implementation, to make it easier for people to comply.

In terms of the decision, on the requirement for travellers to apply for visas in person, in countries where there is no SA mission, the Department of Home Affairs will receive applications, including by post, and capture biometrics of travellers on arrival at ports of entry. To address concerns around the geographical spread of countries like China, India and Russia, certain measures will be put in place to ease the process of application, in particular for tourists.

Read more

A Section B5 African Exchange Control Compliance Document

8.5. PERSONAL TRANSFERS BY FOREIGN NATIONALS AND IMMIGRANTS
(A) FOREIGN NATIONALS
(i) On taking up temporary residence in the Republic
(a) foreign nationals (except those who are purely on a temporary
visit) are required, on arrival, to declare in writing to an
Authorised Dealer:
(aa) Whether they are possessed of foreign assets and if so,
give an undertaking to the effect that they will not place
such assets at the disposal of a third party normally
resident in the Republic; and
(bb) that they have not applied for similar facilities through
another Authorised Dealer.
The completed declarations and undertakings must be retained by
Authorised Dealers, after the permanent departure of such individuals,
for a further period of five years for inspection purposes.
(b) On receipt of such completed declarations and undertakings,
Authorised Dealers may:
(aa) Permit such foreign nationals to conduct their banking on
a resident basis;
(bb) permit such foreign nationals to dispose of or otherwise
invest their foreign assets including foreign cash funds
held by them, subsequent accruals, as well as foreign
income, without interference from the Financial
Surveillance Department.
Such foreign nationals may simultaneously be permitted
to conduct non-resident or F.C. Accounts in the books of
an Authorised Dealer; and
(cc) permit such foreign nationals to transfer abroad funds
accumulated during their stay in the Republic provided
that:
(1) The foreign nationals can substantiate the source
from which they have acquired such funds; and
(2) the value of such funds is reasonable in relation to
their income generating activities in the Republic
during the period.
(31/2010)
2 8.5
This provision excludes single transactions up to an
amount of R3 000 per transaction per day within a limit of
R10 000 per applicant per calendar month.
(c) it should be noted that while the personal banking of foreign
nationals temporarily resident in the Republic may be conducted
on a resident basis, any interest held by such individuals in local
entities (i.e. legal persons) will be deemed as non-resident for
the purposes of local financial assistance.
(ii) Export of goods on Form N.E.P.
Authorised Dealers may authorise foreign nationals to export, on Form
N.E.P., any household and personal effects, including motor vehicles,
provided that they are satisfied that the goods to be exported have
been purchased with funds which would have been transferable in
terms of subsection (i)(b) above and/or have been imported into the
Republic, provided that the individual can substantiate the importation
thereof by the production of documentary evidence.
The Form N.E.P. must be completed in duplicate and signed by the
owner of the goods in question prior to attestation by an Authorised
Dealer. Authorised Dealers should retain a copy of the attested Form
N.E.P. for a period of five years for inspection purposes.
(iii) Capital transfers by Foreign Nationals
Authorised Dealers may permit foreign nationals to retransfer abroad
capital which has been introduced into the Republic, provided that they
can substantiate the original introduction of such funds.
(iv) Foreign Crew Members
Foreign crew members of ships calling at South African ports may be
permitted to remit savings from their earnings, but in no circumstances
should foreign exchange be made available against local payment in
Rand.
(v) Foreign Visitors
Any requests by foreign visitors to be accorded foreign exchange must
be dealt with in terms of the provisions of Section 8.4(C)(i)(g).
Authorised Dealers should also take note of the provisions of Section
8.16(8) regarding the issue of credit and/or debit cards to nonresidents.
(B) IMMIGRANTS
(i) Current and arrear premiums on insurance policies, as well as pension
and medical aid fund contributions
(27/2015)
3 B.5
(a) Applications by immigrants for the provision of foreign exchange
to cover current and arrear premiums due on foreign currency
life insurance policies or contributions to pension and medical
aid funds may be approved by Authorised Dealers, provided
that:
(aa) The applicants have completed the necessary declaration
and undertaking as outlined in subsection B.2(F)(ii);
(bb) they are satisfied, from the production of documentary
evidence, that the commitment was entered into before
the applicants took up residence in the Republic; and
(cc) they are satisfied, from the production of documentary
evidence, that the amounts to be remitted are due by the
applicants.
(ii) Loan repayments and tax commitments
(a) Authorised Dealers may permit immigrants, against the
production of documentary evidence confirming the amount
involved, to repay loans received in their previous country of
domicile for the specific purpose of financing their movement to
the Republic, provided that they are not in possession of any
foreign currency which could be used for the purpose in
question.
(b) Similarly, immigrants may be permitted to settle tax
commitments from the Republic against the production of
documentary evidence confirming the amount involved.
—oOo—
(22/2015)

Where Is The Best Country To Be An Expat?

A new survey of 21,950 expatriates from around the world has crowned Singapore as the best place to be an expat. The Expat Explorer country league table, commissioned by HSBC and now in its eighth year, uses a variety of criteria including economics, experience and family life. Singapore received a 67% approval from expats living there, who reported being encouraged by the nation’s strong economy and the opportunities available to them for career progression.

In the individual pillars, Switzerland ranked first for best economy, New Zealand for experience (overall quality of life) while Sweden was ranked highest for family life.

Living abroad has benefits beyond career advancement. Over half of expat spouses said that they felt the experience had brought them closer together. Confusion and difficulty over managing finances in a foreign country was cited as the most challenging aspect of living abroad.

The report notes that while the allure of finding better jobs and experiences in other countries is a key factor in moving abroad, even in the top 10 nations, everyone’s experience is different. Potential emigrants should be sure they know that “the grass isn’t greener, just a different colour of green”.

HSBC_Expat_Explorer_2015_report.pdf_-_2015-09-30_11.30.32