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News & Press: Technical & tax law questions

PAYE withholding obligation for SA subsidiary of a foreign holding company

28 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: A SA resident company (company X) is a subsidiary in a group of companies of which the holding company is UK based. The group operates in the security service industry, and the nature of the business requires the regular use of sub-contractors, which can be companies or individuals. Where company X contracts directly with a sub-contractor it will perform an assessment as to whether the person is independent or not, and withhold PAYE accordingly from fees paid. However, it often happens that the foreign holding company will contract directly with the SA resident sub-contractor for a specific assignment, and payment will be directly from the foreign company to the sub-contractor. My client (company X) is aware that some of these sub-contractors do not declare the income earned from the foreign holding company on their SA tax returns, even though the services were physically rendered in SA. It should be noted that the sub-contractors are not in any way connected persons to company X. Company X wants to know if it has any liability to SARS in respect of the income earned from the foreign company by these sub-contractors for the services rendered in SA, be it a reporting obligation or a liability for the taxes not paid?

A: A non-resident employer in our view only becomes liable to register and withhold PAYE in SA if he or she has a representative employer in SA as defined in paragraph 1 of the Fourth Schedule, which for foreign employers, is usually when such person has an agent with authority to pay remuneration on its behalf in SA, which depending on the facts could be company X it settles the contractors engaged by HoldCo from its SA bank account. However it should thereafter also be determined whether these contractors are independent and subject to PAYE withholding.

In these instance it is our view that even if no PAYE withholding applies, the foreign HoldCo risks creating a permanent establishment in SA if it uses SA contractors directly to do business in SA which would result in a corporate tax risk.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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