Exchange control

1 As an individual on temporary assignment in South Africa you are treated as a non-resident for exchange controls purposes but afforded “contract worker” status.  This means that you are allowed to open bank accounts and purchase property in South Africa, but do not have the restriction on remittance of foreign assets which applies to residents.

2 Savings from your income may be remitted to the UK on a regular basis provided that the savings are reasonable in relation to the earnings.  The initial request to remit savings abroad must be accompanied by a letter from you employer confirming your employment arrangements.

3 Should you be paid by the overseas group, the income that is paid overseas does not need to be remitted to South Africa and can be retained offshore and you simply remit sufficient funds to meet living expenses. Your payment could be split between the South African and foreign employer. It is important to note that where you are paid does not change your South African tax position.

UK Taxation

4 Based on your expected assignment arrangements it is likely that you will cease to be resident in the UK.  The conditions to be met in order for you to be regarded as not resident in the UK are as follows:

(i) you reside outside the UK for a period spanning a complete tax year;

(ii) you perform your work abroad under a contract of full-time employment; and

(iii) your trips back to the UK do not exceed more than 90 days per tax year.

5 As a non-resident in the UK you are only subject to tax on UK source income.  Thus any income that has its source in the UK (e.g. rental income on a UK property) will be taxable in the UK.

6 If you visit the UK to work from time to time, the income in respect of your UK workdays will not be taxable in the UK if the duties performed are considered incidental to your duties performed in South Africa.  Generally, incidental duties are those of an ancillary nature, for example reporting back to the UK on your work in South Africa.  Attendance of board meetings would not be considered performing incidental duties.

7 If you remain resident in the UK or have any income that falls to be taxed both in the UK and South Africa, generally the country where the income is considered to arise will have the right to tax that income.  This general rule is subject to the provisions of the UK / SA Double Tax Agreement.

8 As a UK national you will still be entitled to a UK personal allowance whilst you are not resident in the UK which may be set off against any UK taxable income.

9 You will remain liable to complete a UK tax return whilst on assignment abroad if you sent a tax return to complete by the tax authorities or if you have any income chargeable to tax in the UK.

10 You should complete a departure form P85 on leaving the UK to notify the Inland Revenue that you have left.  In addition there are certain forms that need to be completed if you are letting your UK property.
National Insurance Contributions (NICs)

11 Your NICs position will depend largely on whether you are seconded from the UK to work in South Africa or if you are transferred here, to work under a local contract of employment.  If you are seconded, the UK company and you remain liable to pay Class 1 NICs (employer and employee) on your remuneration (including benefits in kind).  Thus from an NICs point of view, there are significant savings to be made if you are transferred to South Africa rather than seconded.

12 You will be eligible to pay Class 3 NICs if you are not liable to pay Class 1 NICs.  Paying Class 3 NICs maintains your contribution record for state pension purposes. If paid by the employer, it is a taxable benefit in South Africa.

Employment and tax issues

13 There are a number of issues pertaining to your employment arrangements that need to be reviewed to maximise the tax planning possibilities.  These fall into three main categories.  Firstly the structure of your employment and whether you are seconded or transferred, secondly the provision of benefits and thirdly planning to minimise tax on your personal income and gains.

14 Reviewing the secondment versus inter-company transfer / local employment there are various pros and cons of each scenario.  As mentioned, there is a NICs saving for the company for the first 52 weeks of your assignment if you are transferred rather than seconded (i.e. your legal employer is the South African entity).  Balanced against this, it is important that you meet the criteria relating to the applicable work permit and the NICs position is secondary to this.  Notwithstanding the work permit, the inter-company transfer route could lead to significant costs savings.

15 There are a number of planning points in respect of the provision of benefits and business expenses and I suggest these are taken into account in drafting the employment package, and a tax consultant can then review the final draft to ensure it meets the necessary requirements.

16 In addition to the planning points there are administrative issues that will need attention although these should not effect how the employment package is constructed.

You are welcome to contact Fanus Jonck (tax@jonck.net ; +27 (0) 21 913 4164) regarding any South African tax issues and the structuring of your South African remuneration package.