Kemp Munnik, tax director at BDO Spencer Steward Services was interviewed on tax rules that should be followed by companies bringing skills in from overseas and what South Africans planning to work outside the country can expect.
Question: Kemp, this week we look at immigration and the tax consequences for short-term assignments into and out of South Africa.Tell us a little bit about people coming into South Africa for short-term contracts. What are the tax consequences for their employers?
Answer: If you look at the tax consequences and link it to immigration it’s quite important that there is a tie between the two.For example, people coming to work in South Africa arrive here without proper work permits, or no work permits at all and start working.
Question: Does that often happen?
Answer: It often happens and even more so recently because of the need for people.
Question: So on an emergency basis, people just arrive to work?
Answer: They arrive and start working.The moment you start working you are liable for tax in South Africa.Then a request comes through to start the tax when the work permit has been approved and that might be three months down the track.
Question: So it could take anything up to three months to get that work permit?
Answer: Yes, so obviously there is a discrepancy there.That could be a problem for a company.From an immigration point of view a person working without a work permit could be deported and there will be a penalty for the company.Then once again from a tax point of view, if you do start the tax date from when the work permit was approved, that person has already worked three or four months and was supposed to be liable for tax in South Africa.That creates difficulties for companies.Especially recently where people are flown in on an emergency basis on the projects they have to work on, that creates big problems and exposure for the company.
Question: What should companies do if there is an emergency situation and you want to bring a consultant in to help out immediately?
Answer: I know it’s difficult, but companies do know relatively in advance what their needs are.Once they start talking about it, they should start doing their homework on the immigration side because of the immigration issues, and the struggle to get the work permits through.For inter-company transfers, they must do their homework in advance as much as possible.
Question: How does it affect independent contractors that you would hire from a company based in London for instance to come and fix a short-term problem that you have?
Answer: It’s more applicable to the people you’re going to employ in your own company.If you get a consultant for a week or two different rules apply. That’s not the issue at the moment, because normally that person won’t be taxable in terms of the Double Tax Agreement (DTA).It applies more to people coming here on six months to a year contracts and being employed by local companies.
Question: In terms of South Africans going abroad, what are the issues that face corporations and businesses in South Africa? If we want to send somebody, let’s say to Kenya, London, or New York, to go and perform work services there?
Answer: For outbound people the same applies. Once again immigration is important in those countries.It is, however, much easier in a First World country to get those visas.Going into Africa might be more difficult. It’s quite important that you get your house in order in that country.From a tax perspective, it’s important to know what is required of you in that country.Locally they still have to submit returns although they might be away for six months or a year.One needs to know what their tax requirements are in that foreign country.
Question: Do the double tax treaties play any role?
Answer: Definitely. Most of the double tax agreements make provision for short-term business.Normally the requirement is 183 days and then there is relief.If you work in South Africa you can get relief if you are in South Africa less than 183 days.
Question: Does the use of an intermediate company make it easier in dealing with these issues?
Answer: Definitely.Intermediate companies play quite a big role.I think corporates must also ensure that they have proper relocation policies in place.
Kemp, Thank you for alerting us to these important issues.I am sure that corporates will take heed of what you are saying.
Answer: Thank you very much.
Source: By Kemp Munnik (TaxTALK)