South Africa: VAT implication of employee secondments
South Africa: VAT implication of employee secondments
Secondments of employees by companies between entities within corporate groups (including multinationals) may have unexpected value added tax (VAT) implications.
When salaries of seconded employees are recovered from the entities to which they were seconded, the following must be considered:
- When a foreign employer contractually remains the “employer” of employees seconded to a South African entity—the foreign employer is providing a service to the South African entity and may be required to register for VAT and account for output tax.
- When employees are seconded between South African group entities—the employer may be required to account for VAT on the supply made to its fellow group entity.
- When a South African employer seconds employees to a foreign entity—the South African employer may be entitled to apply the zero rate of VAT to the services supplied, subject to certain documentary requirements
The VAT implications resulting from secondments are not directed by “who pays the salary” but rather by the contractual relationships between the employer(s) and employee(s). In considering secondment contracts or agreements and the effects from a VAT perspective, an entity could be exposed to VAT, penalties, and interest when:
- VAT has not been correctly levied and paid to the South African Revenue Service.
- An entity has failed to timely register for VAT.
- The zero-rated provisions have not been correctly applied.
- The required documentation to substantiate the application of the zero rate was not obtained within the prescribed period.
Read a January 2021 report [PDF 84 KB] prepared by the KPMG member firm in South Africa
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.
