【KPMG Global】South Africa – Update for Non-resident Employers with a PE in South Africa

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2024-110 | May 14, 2024

GMS Flash Alert

2024-110 | May 14, 2024

South Africa – Update for Non-resident Employers with

a PE in South Africa

Further to our report in GMS Flash Alert 2023-218 (20 November 2023), KPMG in South Africa

provides below an update to the most recent legislative amendments on the requirements for non-

resident employers to withhold employees’ tax.1

The timeframe for meeting new obligations was brought forward unexpectedly. As of 22 December

2023, the following foreign employers have an obligation to withhold employees’ tax and remit this

to the South African Revenue Service (SARS) on a monthly basis:

• all foreign employers conducting business through a permanent establishment (PE) in South

Africa; and/or

• all foreign employers that have a representative employer (as defined) in South Africa.

Foreign employers or their representative falling within the above categories, must therefore

Africa.

WHY THIS MATTERS

For foreign employers operating in South Africa, withholding employees’ tax poses both challenges and

opportunities. On one hand, complying with withholding tax regulations adds an additional layer of complexity

to payroll management, requiring meticulous attention to detail and adherence to statutory requirements.

Failure to comply can result in penalties and legal consequences, tarnishing the reputation of the employer

and potentially jeopardizing its operations in the country.

On the other hand, embracing withholding tax obligations demonstrates a commitment to compliance and

good corporate citizenship. It fosters trust and credibility with employees, regulatory authorities, and the

broader business community, enhancing the employer's reputation and positioning it as a responsible

corporate entity.

2024-110 | May 14, 2024

Context

In July 2023, National Treasury released draft legislation indicating a proposed change to the employees’ tax

withholding obligation that would specifically impact non-South African tax resident employers (foreign

employers). After much consultation with regulatory bodies and tax practitioners over a four-month period, a

revised Tax Administration Laws Amendment Bill, 2023 (TALAB) was issued on 1 November 2023, which

provided much-needed clarity on which foreign employers would be impacted by the proposed amendments.

Whilst the expectation was that the legislation would be promulgated early in January 2024, the promulgation

in fact took place on 22 December 2023, and the change was effective immediately. Consequently, as of 22

December 2023, the above-noted categories of foreign employers have an obligation to withhold employees’

tax and remit this to the South African Revenue Service (SARS) on a monthly basis.

What Should Foreign Employers Do?

As it stands, with the unusual and unexpected effective date of this legislative change, many foreign

employers could already be non-compliant.

To navigate the intricacies of employees’ tax withholding compliance in South Africa, foreign employers

should seek professional tax advice to understand the laws and regulations governing withholding of

employees’ tax, including assessing:

• whether they have a PE or representative employer in South Africa,

• the applicable tax rates and thresholds,

• reporting obligations, and

• the consequences of non-compliance.

For more details, see our earlier report in GMS Flash Alert 2023-218 (20 November 2023) “South Africa –

Proposals for Non-resident Employers with a PE in South Africa.”

KPMG INSIGHTS

Despite this amendment to the employees’ tax withholding obligation of foreign employers, as noted in our

report in GMS Flash Alert 2023-159 (8 August 2023), there continues to be a misalignment between this

PAYE withholding obligation of foreign employers and their obligation to make Unemployment Insurance

Fund (UIF) contributions and pay Skills Development Levies (SDL) (South Africa’s equivalent of “social

security” contributions). This anomaly now remains specifically in cases where the foreign employer does not

have a PE or a representative employer in South Africa.

As the legislation currently stands, all foreign employers (whether they have a PE or representative employer

in South Africa or not) must contribute to UIF and SDL in respect of remuneration (as defined) paid to their

employees working in South Africa. Further tax practitioner and regulatory body submissions may continue to

be made to SARS in this regard.

In cases of non-compliance, to minimise or eliminate potential penalties, foreign employers should consider

making use of the SARS Voluntary Disclosure Programme (VDP). The VDP process has strict criteria in

order for the application to qualify, and therefore professional tax advice should once again be sought to

manage this process.

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©2024KPMGServicesProprietaryLimited,aSouthAfricancompanywithregistrationnumber1999/012876/07andamemberfirmoftheKPMGglobalorganisationofindependentmemberfirmsaffiliatedwithKPMGInternationalLimited,aprivateEnglishcompanylimitedbyguarantee.Allrightsreserved.PrintedintheU.S.A.2024-110|May14,20241GMSFlas...

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