Taxation of international executives
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Tax returns and compliance
Relief for foreign taxes
General tax credits
Sample tax calculation
All information contained in this document is summarized by KPMG Services (Pty) Ltd, the South African member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the South African Income Tax Act 58 of 1962 and subsequent amendments; the Tax Administration Act 28 of 2011; Interpretation Notes and Rulings issued by the South African Revenue Service from time to time; applicable South African and relevant global case law.
All income tax information contained in this document is summarized by KPMG Services (PTY) Limited, the South Africa member firm affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity, based on the Income Tax Act, No 58 of 1962 (as amended).
Following is an overview of the concept of South Africa’s immigration system for skilled labor.
(E.g. which steps are required, authorities involved, in-country/territory and foreign consular processes, review/draft flow chart illustrating the process)
In terms of the South African Immigration Act 13 of 2002, “The Act” any foreign national employed in South Africa must be in possession of a work visa authorizing them to work for their respective employer.
Foreign nationals recruited from abroad must apply for their work visa through the South African Consular offices abroad and await the outcome of their visa applications prior to departing for South Africa. They are not allowed to travel on a Visitors or Tourist visa and apply for a long term work visa within South Africa.
Foreign nationals who are in possession of a long term South African work visa are permitted to apply for change of conditions or status within South Africa and be issued with new visas. However, this is not applicable for holders of Intra-Company Transfer work visas.
There are various types of work visas which foreign nationals can apply for in order to work legally in South Africa. This would be dependent of the type of employment arrangement, whether the foreign national will be seconded to work in South Africa on an international assignment or whether they will be offered a local employment contract.
Foreign nationals whom are employed abroad and assigned to work on an international assignment at a branch/subsidiary or affiliate company in South Africa may apply for an Intra-Company Transfer work visa. The assigned employee must have been employed by the company abroad for not less than 6 months and the employee will be required to transfer skills to South African citizens or permanent residence holders. Intra-Company Transfer work visas are issued for a maximum period of 4 years and not renewable beyond this period.
Foreign nationals who are offered local employment by the South African entity can either apply for a Critical skills work visa or General Work visa. In June 2014, the Department of Home Affairs published the Critical skills list which outlines skills and /or qualifications which are deemed to be critical in South Africa.
Foreign nationals who fall within the occupational categories listed on the critical skills list are eligible to apply for the work visa.
It is not mandatory for foreign nationals to secure employment in order to apply for a Critical skills work visas, however it is expected that the foreign national secures employment within 12 months of issuance of the work visa. Critical skills work visas are issued for a maximum period of 5 years and the work visa is renewable. In situations where a Critical skills work visa is issued for a period of 12 months and the foreign national is able to secure employment within this period, the holder will be permitted to apply for the remaining 4 years within South Africa. Foreign nationals who qualify to apply for a Critical skills work visa will be required to obtain an evaluation of their foreign qualifications by the South African Qualifications Authority (SAQA) and to register with a professional body, council or board recognized by SAQA.
Foreign nationals who do not fall within the gazetted Critical skills list categories and wish to take up local employment in South Africa can apply for a General work visa. The process entails obtaining a labor recommendation from the Department of labor and the prospective South African employer will be required to demonstrate that a diligent search was conducted to source suitable South African or Permanent Resident candidates with qualifications or skills and experience equivalent to those of the foreign national.
General work visas are issued for a maximum period of 5 years and are renewable within South Africa.
Despite the stringent immigration requirements, foreign nationals should still be afforded an opportunity to compete for employment and apply for available jobs. However, labor requirements prescribes that South Africans and permanent residents are given preference. Where a foreign national is considered there should be clear evidence that the applicant has the required experience or qualifications that other South African candidates do not have applying for similar positions.
Employment of illegal foreigner nationals is prohibited and may result in the employers being arrested and imprisoned or fined.
Describe (a) which nationalities may enter South Africa as non-visa national, (b) which activities they may perform and (c) the maximum length of stay.
The following citizen who is a holder of a national passport of the following countries/territories are not required to hold a visa in respect of purposes for which a port of entry visa may be issued for an intended stay of 90 days or less.
African Union Laissez Passer, Andorra, Angola (ordinary passports 90 days per annum visits not to exceed 30 days), Argentina, Australia, Austria, Belgium, Botswana, Brazil, Canada, Chile, Czech Republic; Denmark, Ecuador, Finland, France, Germany (except in diplomatic staff due to assume duty at the Embassy and Consulates of Germany in SA), Greece, Iceland, Ireland, Israel, Italy, Jamaica, Japan, Liechtenstein, Luxemburg, Malta, Mali, Monaco, Namibia (only ordinary passport holders 90 days per annum), Netherlands, Norway, Panama, Paraguay, Portugal, Russian Federation, San Marino, Singapore, Spain, St Vincent & the Grenadines, Sweden, Switzerland, Tanzania (90 days per annum), Trinidad & Tobago (only ordinary passport holders), United Kingdom of Great Britain and Northern Ireland (only ordinary passport holders), British Islands Bailiwick of Guernsey and Jersey, Isle of Man. British Oversees Territories namely: Anguilla, Bermuda, British Antarctic Territory, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, St Helena and Dependencies (Ascension Island, Gough Island and Tristan da Cunha), Pitcairn, Henderson, Duke and One Islands, the Sovereign Base Areas of Cyprus South Georgia and South Sandwich Islands and the Turks and Caicos Island. United States of America (only diplomatic and ordinary passport holders. However, diplomatic passport holders who are due to assume duty at the Embassy and Consulates of the USA in South Africa, require visas for accreditation purposes); Uruguay, Venezuela, Zambia (90 days per annum), Zimbabwe
The following citizen who is a holder of a national passport of the following countries/territories are not required to hold a visa in respect of purposes for which a port of entry visa may be issued for an intended stay of 30 days or less.
Antigua and Barbuda, Bahamas (only ordinary passport holders), Barbados, Belize, Benin, Bolivia, Cape Verde, Costa Rica, Cyprus (only ordinary passport holders), Gabon, Guyana, Hong Kong [only with regard to holders of Hong Kong British National Overseas passports and Hong Kong Special Administrative Region passports], Hungary (only ordinary passport holders), Jordan, Kingdom of Eswatini, Lesotho, Macau [only with regard to holders of Macau Special Administrative Region passports (MSAR)], Malaysia, Malawi, Maldives, Mauritius, Mozambique (only ordinary passport holders), Peru, Poland (only ordinary passport holders), Seychelles, South Korea, Thailand (only ordinary passport holders),Turkey.
The following activities are permissible to be conducted in South Africa for visa-exempted nationals.
Describe (a) the regulatory framework for business traveler being visa nationals (especially the applicable visa type), (b) which activities they may perform under this visa type and the (c) maximum length of stay.
Citizens from non-visa exempted countries/territories are required to apply for a business visa prior to travelling to South Africa. An application for the visa must be submitted through the South African Consular or Embassies abroad either in the travelers’ country/territory of origin or where they hold residence.
Business travelers are permitted to conduct business activities in South Africa and maximum length of stay will be determined by the issuing authority. In most cases, the maximum period which may be granted by the South African Consular offices is 90 days.
Outline the process for obtaining the visa type(s) named above and describe (a) the required documents (including any legalization or translation requirements), (b) process steps, (c) processing time and (d) location of application.
In some countries/territories, visa applications are submitted directly to the South African Consular abroad and an appointment may be required for the submission of the visa application. In other countries/territories, the South African Consular utilizes the services of the Visa Facilitation Services (VFS Global) for submission of visa application and collection of visa outcomes. An appointment with the VFS office may also be required for submission of visa application.
The processing time of business visa applications is usually between 5 -10 workings days and visa application must be submitted in person either in the travelers’ country/territory of origin or where they holds residence.
Are there any visa waiver programs or specific visa categories for technical support staff on short-term assignments?
Yes, the South African immigration law does allow technical staff on short-term assignment to conduct work related activities. Irrespective of the traveler’s nationality or visa exemption, the staff member will be required to apply for a Section 11(2) Visitors Visa with an authorization to conduct work related activities in South Africa and the application must be submitted through the South African Consular offices abroad in person.
A section 11(2) visa cannot be used as a casual work visa for on-going regular work activities. The purpose of a Section 11(2) visa is issued for urgent need or immediate short term work of limited duration which cannot be met by an application for a work visa. The visa is usually issued for a period of 3 months and the South African Consular offices usually processes the visa applications between 5 -10 working days.
What are the main work permit categories for long-term assignments to South Africa? In this context outline whether a local employment contract is required for the specific permit type.
Intra-Company Transfer work visas” ICT” (No local employment contract required).
An ICT is issued when an employee of a company abroad is transferred to a branch, subsidiary or affiliate company in South Africa. ICT work visas may be issued for up to 4 years and not renewable beyond this period. The employee must be employed by the company abroad for not less than 6 months and the employee remains employed by the company abroad.
The South African company will be required to develop a plan to transfer skills to South African citizens or permanent residents. Furthermore, the company will be required to undertake to ensure that the employee’s passports remains valid for the duration of the assignment, ensure compliance with the South African Immigration Act and its regulations, the employee is employed in a specific position for which the visa has been issued and to reimburse the department of Home Affairs of any costs incurred in relation to the deportation of the ICT holder and their dependent family.
Provide a general process overview to obtain a work and residence permit for long- term assignments (including processing times and maximum validation of the permit).
Intra-Company Transfer work visa applications must be submitted abroad through the South African Consular offices abroad in person, prior to departing for the long term assignment in South Africa. The South African Consular offices usually takes between 8-12 weeks to process the work visa application.
Is there a minimum salary requirement to obtain a long term work and residence permit for assignments? Can allowances be taken into account for the salary?
There is no minimum salary requirements to obtain an Intra-Company Transfer work visa.
Is there a fast-track process which could expedite the visa/ work permit?
No, there is no fast-tracking process for expediting of work visa applications.
At what stage is the employee permitted to start working when applying for a long term work and residence permit (assignees/ local hire)?
The employee can only start working once the work visa has been issued by the South African authorities.
Can a short term permit/ business visa be transferred to a long term permit in South Africa?
No, holders of short term visas or business visas are not allowed to apply for long term work visas within South Africa.
Is it possible to renew work and residence permits?
Instances where the ICT work visa has been granted for less than 4 years, an application for a renewal of the work visa can be submitted within South Africa, to request the remaining period of the ICT work visa.
Is there a quota or system or a labor market test in place?
There are no quota systems or a labor market test in place. However, the Department of Labour requires employers to test the local market by advertising the prospective job positions in national newspapers for local employment.
Would it be possible to bring family members to South Africa?
Yes, holders of valid temporary residence visas are allowed to bring family members to accompany them in South Africa and they are required to apply for their visas before departing to South Africa.
Is it possible to obtain a permanent residence permit?
Yes, there are numerous ways in which a foreign nationals can obtain permanent residency in South Africa.
What if circumstances change after the Work and Residence application process (e.g. change of employment or personal situation, including job title, job role or salary)?
Any change in employment or personal situation will subject the employer to notify the Department of Home Affairs. In cases where there is a change in employment, a new work visa must be obtained citing the new employer’s details.
How long can a permit holder leave South Africa without their permit becoming invalid?
Visas are affixed to an expiry period and the visa would be declared invalid upon the expiry date.
Must immigration permissions be cancelled by the end of the assignment/employment?
Yes, as part of the obligation of the employer, it is imperative that a work visa is cancelled at the end of the employee’s assignment or employment.
Are there any penalties for individuals and/or companies in place for non-compliance with immigration law?
Yes, there are penalties for companies which are found to have contravened the Immigration Act and individuals who have overstayed on their visas are declared undesirable and restricted from entering the Republic.
List any other important items to note, or common obstacles faced, in South Africa when it comes to the immigration processes.
It is imperative that individuals apply for their police clearance certificates from all countries/territories where they have resided for longer than 12 months for all work visa applications.
The Department of Home Affairs and Labour are becoming stricter on employment of foreign nationals and companies are required to ensure that they have developed a skills transfer plan for the upskilling of South African Citizens or Permanent Residents, which will be monitored to ensure compliance.
A new draft Critical skill list will be issued by the Department of Home Affairs for public comment within the coming months which may have an impact on the future Critical skills work visa applications.
Broadly speaking, tax residence can be established through either physical presence or through being considered ordinarily resident in South Africa.
In terms of the physical presence test, where an individual is not ordinarily resident, they will be considered to be resident in South Africa if they are physically present in the Republic for a period exceeding 91 days during the current year of assessment as well as during each of the 5 preceding years of assessment, and they were physically present in the Republic for a period exceeding 915 days (or part-days) in aggregate during those preceding 5 years. Where a person who became resident by virtue of physical presence in South Africa, is outside the Republic for a continuous period of 330 full days after ceasing to be physically present in the Republic, that person will be deemed not to have been resident from the day they ceased to be physically present in the Republic.
The concept of ordinarily resident is not defined in the Income Tax Act, No. 58 of 1962, as amended (the Act), and is widely held (from case law) to be the country/territory which an individual considers to be their real home, i.e. the place where their permanent place of abode is, where their belongings are stored, which they leave for temporary absences and to which they regularly return after such absences. If the taxpayer is habitually and normally resident here, apart from temporary or occasional absences of long or short duration or if they decide to settle permanently in South Africa, South Africa is recognized as being their real home and the individual will become a resident by virtue of ordinarily residence immediately.
Generally speaking, most types of remuneration and benefits received by an employee for services rendered in South Africa constitute taxable income regardless of where paid; subject to certain exceptions.
Typical items of an expatriate compensation package set out below are fully taxable unless otherwise indicated.
In most cases where the South African taxes are, by reason of tax equalization, the employer’s responsibility, the compensation should be grossed-up for the tax liability. This gross-up must account for the full tax-on-tax effect of the employer paying the taxes.
Where the employer reimburses taxes paid by the employee, these taxes are treated as a taxable benefit.
All home leave flights are taxable. This does not apply to relocation flights or flights provided for travel in conjunction with business travel.
Cost-of-living allowances are fully taxable in South Africa.
For purposes of determining the value of the taxable benefit relating to employer-provided accommodation, no rental value is placed on any accommodation provided by an employer to an employee while they are away from their usual place of residence outside of South Africa, provided:
The concession above is limited to 25,000 South African rand (ZAR) per month during which the accommodation was provided during the tax year, for up to 2 years. This provision will only apply if that employee was not present in South Africa for a period exceeding 90 days during the tax year immediately preceding the date of arrival in South Africa.
If the aforementioned conditions are not satisfied the accommodation provided to an employee by their employer is fully taxable in South Africa. The value of the taxable benefit will be, where the accommodation is obtained by the employer in terms of an arm’s length rental agreement, the lower of the actual cost incurred by the company, less any consideration paid by the employee, or the result of a remuneration based formula. The application of the formula or the rental value is dependent on various factors and should be evaluated on a case-by-case basis.
Where the accommodation is owned by the employer, the remuneration based formula must be used to determine the rental value.
The legislation does not provide for an apportionment where employees share accommodation. However, the Commissioner for SARS has discretion to reduce the rental of accommodation if, by reason of the situation, nature or condition of the accommodation or any other factor, the value determined in accordance with the legislation is not fair and reasonable.
The monthly taxable value determined value (the cash cost including VAT) per month of each vehicle, where the vehicle is
80% of the taxable benefit will be subject to PAYE on a monthly basis. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
The taxable value may be reduced on assessment of the employee’s income tax return in accordance with the ratio of business kilometres travelled to total kilometres travelled.
Further relief is available for the cost of
Employer contributions to Medical Aid
Employer contributions to an approved South African medical aid fund, or to any fund which is registered under any similar provision contained in the laws of any other country where the medical scheme is registered, will be taxable. Employer contributions to a foreign medical scheme, which are not paid to a fund as described above, will be regarded as a taxable benefit where the employee acquires the right to have those contributions made by his/her employer in terms of his/her contractual arrangements. If the employee is a non-resident for South African tax purposes, these contributions will be taxable in South Africa to the extent that they are regarded as South African sourced income. Furthermore, any employee contributions, which the employer takes over, will be taxable.
With effect from the 2018 South African tax year, taxpayers under the age of 65 years may deduct from their tax liability a tax credit of ZAR 303 per month for the first two beneficiaries and ZAR 204 per month for each additional beneficiary, in respect of medical aid contributions made by themselves or their employer to an approved South African medical aid fund or any fund which is registered under any similar provision contained in the laws of any other country where such medical scheme is registered.
Prior to 1 March 2016, it was permitted for employers, instead of covering specified expenses, to pay a tax-free relocation allowance of up to one month’s basic salary, to cover an employee’s settling-in costs.
As from 1 March 2016, any such allowance would have to be treated as taxable. The employer would only be able to claim the exemption in respect of certain expenses (refer to the list hereunder), and only if proof of expenditure is available.
The following items of expenditure qualify:
There are no special tax concessions for expatriates. However, assuming the foreign national is not a South African tax resident, non-South African-sourced employment income, investment income and capital gains (excluding gains derived from the disposal of immovable property held in South Africa) will not be subject to tax.
To the extent that a non-resident individual renders services outside of South Africa, the remuneration attributable to the time worked abroad would not be taxable in South Africa, as it would not be sourced in South Africa. This apportionment will usually be done on the basis of days spent working inside and outside South Africa. It is however our recommendation that the requirement for the individual to render services abroad be detailed in a contract of employment – if subject to Audit, SARS will ask for the contract and expect to see this specifically stated in the contract.
With regards to resident individuals, prior to 1 March 2020 foreign sourced employment income can be exempted subject to certain conditions, namely that services were rendered abroad for more than 183 full days in any 12-month period, including more than 60 continuous full days.
From 1 March 2020, South African tax residents who spend more than 183 days in employment outside the country/territory will be subject to South African taxation on foreign sourced employment income that exceeds R1 million. Relief can be provided by claiming foreign tax credits (in terms of section 6quat of the Income Tax Act) in respect of taxes paid in the foreign country/territory relating to the foreign employment income in excess of R1 million.
We encourage South African residents working abroad to contact a tax advisor to discuss the options available to reduce the impact of the legislative changes.
Non-residents are taxable on South African-sourced investment income and on capital gains derived in respect of immovable property held in South Africa. South African residents are generally fully taxable on worldwide income and capital gains.
With respect to rental income, deductions are allowed for interest, rates, taxes, and other related expenses.
In broad terms, taxable capital gains are computed by taking the disposal or deemed disposal proceeds and deducting the base cost of the asset. Forty percent of the gain will be included in taxable income and taxed at the individual’s marginal tax rate (i.e. a top income tax rate of 45 percent would result in an effective rate of CGT of 18 percent). An annual exclusion of ZAR40,000 per year is available.
Please note the deadlines are still to be confirmed by the tax authorities.
SARS will assess the return and notify the taxpayer of any taxes outstanding or refund due. Tax is due by the date specified on the assessment, typically 30 days from the date on which the assessment is issued, for non-provisional taxpayers. Provisional taxpayers with assessed tax liabilities will be subject to interest and potential penalties.
Late submission of an income tax return will attract an administrative non-compliance penalty.
Foreign tax credit relief for South African tax residents is typically granted in terms of domestic provisions (section 6quat). Alternatively, relief can be granted in terms of a Double Taxation Agreement (DTA).
As mentioned above, with effect from the 20120 South African tax year, a taxpayer may deduct from their tax liability a tax credit of ZAR310 per month for the first two beneficiaries and R 209 for each additional beneficiary, in respect of medical aid contributions to qualifying medical aid schemes.
This calculation assumes a married taxpayer non-resident in South Africa with two children whose 3-year assignment begins 1 March 2017 and ends 29 February 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.
|Housing allowance (Cash)||12,000||12,000||12,000|
|Company car (see assumptions)||6,000||6,000||6,000|
|Moving expense reimbursement||20,000||0||0|
|Interest income from South African sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = ZAR16.00
Calculation of taxable income
|Days in South Africa during tax year||365||365||366|
|Earned income subject to income tax|
|Company car Taxable value||312,000||312,000||312,000|
|Moving expense reimbursement||0||0||0|
|Total earned income||2,712,000||2,632,000||2,792,000|
|Other income (Local Interest)||96,000||96,000||96,000|
|Deductions (Local interest exemption)||(23,800)||(23,800)
|Total taxable income||2,784,200||2,704,200||2,864,200|
|Taxable income as above||2,784,200||2,704,200||2,864,200|
|South African tax thereon||1,111,515||1,073,931||1,145,931|
|Domestic tax rebates (dependent spouse rebate)||(13,635)
|Foreign tax credits (Maximum allowed equal to South Africa tax liability on foreign-sourced income).||0||0||0|
|Total South African tax||1,097,880||1,059,864||1,131,711|
There is a requirement for provisional taxpayers to declare all assets in their annual tax returns – both local and foreign. There is no separate foreign financial asset reporting requirement.
1Sample calculation generated by KPMG Services (PTY) Limited, the South Africa member firm affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity, based on the Income Tax Act, No 58 of 1962 (as amended).
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