Following the backlash from the tax fraternity in response to the controversial Immigration Regulations which were published (and subsequently withdrawn) on 8 February this year, the Minister of Home Affairs Aaron Motsoaledi wasted no time in amending and republishing new Immigration Regulations on 20 May. 

The express reference to a tax exemption for foreigners earning more than R1-million per annum and working remotely in South Africa remains; however, it has undergone a slight modification. The Minister's intention to appeal to foreign visitors by seemingly offering a six-month tax exemption endures, despite the negative reception of the previous Regulations. 

Redefining remote work visas

The new Regulations include certain additions and alterations compared to its predecessor. The “Second Amendment to the Immigration Regulations, 2014”, provides that: 

“work conducted, as contemplated in section 11(2) of the Act, for a foreign employer or derives foreign source income on a remote basis: Provided that—

(i)               such foreigner earns a gross income of no less than the equivalent of R1 000 000.00 (One Million Rand) per annum; 

(ii)              if the visa is issued for a period not exceeding 6 months within a 36-month period, the foreigner may apply to be exempted by the South Africa Revenue Service from registering as a taxpayer; 

(iii)            if the visa is issued for a period longer than 6 months within a 36-month period, the foreigner must register with the South African Revenue Service; 

(iv)            if applicable complies with legislation governing employment of workers in the Republic;” (our emphasis)

Whereas the first draft of the Regulations provided a blanket tax exemption to all remote foreign workers on a work visa not exceeding 6 months, the new Regulations provide that these foreign workers may to apply to SARS for an exemption from registering as a taxpayer.

This revised provision is somewhat of an improvement, simply because the Regulations no longer expressly create a tax rule which previously did not exist. This revision follows the outcry from tax experts who were concerned that the Minister of Home Affairs was encroaching on the domain of National Treasury and SARS.

Home Affairs still meddling in tax laws

Foreign workers are now provided with an option to apply to SARS for tax exemption. The question which arises, however, is whether or not any such exemption exists under South African law. Tax experts have responded with a resounding “no”; there is no such provision. 

In the absence of an existing tax exemption, it remains concerning that the Department of Home Affairs continues in its habit of trying to make tax law, despite challenges raised to the initial Regulations. Alternatively, can we expect National Treasury or SARS to confirm the introduction and implementation of this new exemption?

Tax Consulting SA has written to SARS officials asking this very question, and hope to get clarity in the coming weeks. 

Cap on tax exemption

The remote visa issued in terms of the Regulations must be valid for no longer than 6 months in a 36-month period, replacing the previous provision of 6 months within any 12-month period. 

Conversely, foreign remote workers exceeding their 6-month stay in South Africa are obliged, by virtue of the Regulations, to register as a taxpayer with SARS. This is, again, contrary to the current tax framework, whereby the Commissioner for SARS issues a Public Notice determining the tax obligations for individuals and companies each year. 

It appears that, irrespective of the nature of the income received by these foreign workers, and whether any such income is subject to tax in South Africa, they will need to register for tax due to the type of visa held by them. 

Conclusion

When the tax treatment of an individual is premised on their nationality and the nature of their visa rather than the nature of the income earned by them, it creates a complex and potentially inequitable tax landscape. 

It remains unclear why the Minister is offering a tax exemption to one category of foreign workers while mandating compulsory tax registration for another, especially since neither provision appears to exist in the current tax laws.

Taxpayers will need clarity from SARS on how these exemptions will be implemented and enforced. Until such time that these ambiguities are resolved, the impact of the Regulations will remain uncertain.

Written by Darren Britz, Partner & Head of Tax Legal Tax Consulting SA; and Bronwin Richards, Tax Attorney Tax Consulting SA.