Tax and employment considerations for digital nomads

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On 20 May 2024, the amended Immigration Regulations were published for comment. The Regulations include the long-awaited publication of the 'Digital Nomad Visa'. Recent studies have shown that the demand for remote work outstrips supply and offers employees increased flexibility concerning their time, being nearer to loved ones, and other "life" concerns.

Digital nomads: A stay of six months or less makes Sars registration moot

Currently, foreign nationals entering South Africa to work for a local company are required to have the correct work authorisation to do so. Getting it means applying for the appropriate work visa as set out in the Immigration Act. The existing requirements and lengthy waiting periods associated with these permits can quickly quell a foreign employee's appetite to work in South Africa for a short period.

The digital nomad visa seeks to offer foreign workers more opportunities to work in South Africa while avoiding the travails of permanent employment. The visa would apply if the foreign national intends to work remotely in South Africa for a foreign employer or derives a foreign source of income remotely.

To qualify for a digital nomad visa, a foreign national must prove that they earn no less than the equivalent of R1m annually. If this visa is issued for a period not exceeding six months within 36 months, the foreign national may apply for exemption from the South Africa Revenue Service (Sars).

However, if the visa is issued for a period longer than six months within 36 months, the foreign national will be required to register with Sars. If applicable, the foreign national must also comply with legislation governing the employment of workers in South Africa.

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What employers need to consider about leveraging the digital nomad visa

Employers have to think carefully about leveraging the digital nomad visa and whether South African employment law applies to remote workers working in the country. This is particularly important as all foreign employees, including those who do not have valid working visas, are afforded legal protection under the Labour Relations Act.

This raises the importance of having global mobility policies in place and including specific terms and conditions of employment in a foreign worker's contract that address these issues. For example, foreign employers with employees who hold such visas and who live and work in South Africa would need to consider various tax issues arising from these remote working arrangements.

The work done by the individual may create a permanent establishment of the foreign employer in South Africa, in which case the foreign employer would need to register as an employer with Sars and account for payroll taxes here. An individual who is an independent consultant and working remotely in their capacity would not have these issues.

Employer of Record

An alternative route that has emerged is the use of 'Employer of Record' (EoR) service providers to engage workers in jurisdictions outside of the jurisdiction in which an employer is based. An EoR effectively employs a person on behalf of a foreign client company for a fee, minimising the costs and administrative burden associated with direct employment in South Africa, especially around tax and compliance management.

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However, there are risks. An EoR and the client/foreign company may be found to be the sole/shared employer of a worker in South Africa if the worker triggers the deeming provisions that apply to temporary employment services, which sit at R254,371.67 per annum. If this happens, the worker will be treated as an employee of the foreign company and deemed to be party to an employment contract in South Africa, mandating registration with the Companies and Intellectual Property Commission (CIPC).

Considerations for SA companies looking abroad

On the other end of the spectrum, South African companies wanting to engage employers of record overseas should be aware of the laws applicable in the relevant jurisdiction. In certain jurisdictions, the use of employers of record is highly regulated. Specialist legal advice on intellectual property, tax, and employment law should be sought in those foreign jurisdictions, and careful consideration should be made as to the possibility of creating a permanent establishment.

The world of work and talent is changing dramatically. For employers and employees wishing to explore the world of work offered by digital nomad visas and similar programmes, it is wise to have a thorough understanding of the limits of such programmes, and their potential implications.