It has always been a contentious issue as to the extent to which foreigners working in South Africa should be subject to tax in South Africa. In the absence of a double taxation agreement ("Treaty") which governs the payment to the foreigners, one of the issues is whether remuneration is received by the foreigner in South Africa to the extent that it is actually paid by the South African employer to the foreigner.

In terms of the Income Tax Act every employer who is a resident and who pays an amount by way of remuneration to an employee, including a foreigner, is obliged to deduct tax in the form of PAYE. It also relates to every representative employer in the case where the employer is not a resident (ie in circumstances where the foreigner is paid by his foreign employer). A representative employer is also defined with reference to an employer who is not resident in South Africa, as any agent of the employer having authority to pay remuneration. It follows that no PAYE needs to be deducted if the employer is not a resident and there is no representative employer in South Africa. One of the potential issues is that there is no representative employer in circumstances where the foreign employer conducts business in South Africa through means of a branch. However, if the branch actually constitutes a permanent establishment in South Africa and has employed other employees, it may well be seen that the branch constitutes the representative employer.

One of the issues relating to foreigners, is whether the provision of residential accommodation constitutes a fringe benefit which is subject to tax in South Africa. In this context the Income Tax Act provides that no value is to be placed on any accommodation which is provided away from an employee’s usual place of residence. Traditionally the practice has been to allow employees to be absent for a period of six weeks or less. However, there is no statutory provision to that effect. In a tax court decision it was held that, if an employee goes to live so far from his place of employment, or accepts employment so far from his residence, that he is obliged to find accommodation closer to his place of employment, his new place of residence would become his usual place of residence. In other words, if an employee chooses to accept employment situated far from his home, one cannot necessarily conclude that the accommodation provided by his employer would constitute accommodation away from his usual place of residence. Each case should be considered individually and one cannot necessarily provide hard and fast rules with reference to whether or not the accommodation in South Africa constitutes something else than the usual place of residence. This would amongst others depend on the period of stay in South Africa, the frequency of returns to the alleged usual place of residence, whether family remains at the usual place of residence and the like.

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