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MANAGING AFRICA EXPATRIATE ASSIGNMENTS Shohana Mohan Tax Associate BDO South Africa.

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Presentation on theme: "MANAGING AFRICA EXPATRIATE ASSIGNMENTS Shohana Mohan Tax Associate BDO South Africa."— Presentation transcript:

1 MANAGING AFRICA EXPATRIATE ASSIGNMENTS Shohana Mohan Tax Associate BDO South Africa

2 WHAT WE WILL DISCUSS TODAY Expatriate Tax System – Shohana Mohan Interesting facts on assignments in AfricaGeneral taxation rules relating to Expatriate EmployeesAssignments into Africa – Points for considerationAfrica – Assignment Planning Checklist / factors for consideration – OUTBOUND / INBOUND CASE STUDY – Possible SolutionsQuestions Facing the Challenges of Doing Business in Africa Page 2

3 Expatriate Tax System – Shohana Mohan Interesting Facts – AFRICA / EMEA Region In a recent ORC Worldwide Survey in which 930 Multinational Organisations participated: Growth in Expatriate Populations increased from 28,105 in 1998 to 95,141 (2008) in the EMEA region as compared with Japan, Americas and Asia Pacific Popular Assignee Destinations in the EMEA region: Facing the Challenges of Doing Business in Africa Page 3

4 Expatriate Tax System – Shohana Mohan Interesting Facts – AFRICA / EMEA Region (Cont) Policy Trends in Africa: 43%* Pay Mobility Premiums 82%* Pay Hardship Allowances 80%* Pay Cost of Living Allowances – COLA 87%* Provide a pre- assignment trip for Expat + Spouse 53%* Adopt a Localisation Policy (low cost alternative) 71%* Provide Economy Class Travel and 29% provide Business Class Travel *197 Multinational Organisations participated in the Survey – November 2009 Facing the Challenges of Doing Business in Africa Page 4

5 Expatriate Tax System – Shohana Mohan General Taxation Rules – Expatriate Employees South African tax residents liable for tax on worldwide income and capital gains Non-South African residents are liable for tax on their South African sourced income and capital gains (subject to certain exclusions) Facing the Challenges of Doing Business in Africa Page 5

6 Expatriate Tax System – Shohana Mohan General Taxation Rules – Expatriate Employees Who is regarded as tax resident of South Africa ORDINARILY RESIDENT - not defined in the Income Tax Act. Case law = place an individual will return to from his/her wanderings PHYSICAL PRESENCE - annual test > 91 days in the current year of assessment > 91 days in the five preceding years of assessment 915 days in aggregate in the five preceding years of assessment NOT exclusively a resident of another country when the DTA between South Africa and that other country is applied Facing the Challenges of Doing Business in Africa Page 6

7 Expatriate Tax System – Shohana Mohan General Taxation Rules – Expatriate Employees Taxation of Employment Income Worldwide income – exemption of employment income relating to services rendered outside South Africa for and on behalf of an employer. 61 consecutive days and an aggregate of 184 days in any 12 month period Residents Taxable on workdays in South Africa Application of Double Tax Treaty More than 183 days in South Africa Paid by South African resident company Costs borne by a permanent establishment in South Africa Non- Residents Domestic law prescribes to the extent a South African tax resident renders services outside South Africa for and on behalf of an Employer for a period or periods exceeding 184 days of which 61 days are continuous during any 12 month period, the remuneration so earned is exempt from South African tax. Facing the Challenges of Doing Business in Africa Page 7

8 South Africa Tax System – Shohana Mohan Africa – Structure: Some points to consider Type of assignment Nature of duties of assignees Type of pay elements Upfront project costing Secondment Transfer Localisation To avoid potential corporate risks, i.e. permanent establishment exposure Method of pay How to deliver benefits to optimise tax saving Cost saving exercise Facing the Challenges of Doing Business in Africa Page 8

9 South Africa Tax System – Shohana Mohan Africa Assignment Planning Initial Planning Phase Review Contracts Review Policies & Remuneration Methodologies Formulate & Design Assignment build-up model Review International Assignment Policy (country specific) Employees Tax Withholding (SA/Host) Understanding core business needs Legal nature of contracts: Secondment Transfer Localisation Country specific matrix detailing: Taxation of certain benefits/allowances Payroll obligations/requirements Estimation of Salary Package: Build-up remuneration model Home/Host Tax liabilities Review Policies to ensure: Consistency with country specific tax laws Align policy to maximise tax saving opportunities Payrolls: Shadow payroll in SA to mirror host payroll Host country payroll setup Facing the Challenges of Doing Business in Africa Page 9

10 Expatriate Tax – Shohana Mohan Case Study – Expatriate into South Africa and out of South Africa JPS MNE 2-5 year Secondment Agreement JPS SA JPS in Mauritius, Botswana, Uganda and Zambia may be required to second their staff to work on assignments in South Africa. South Africa may also second their staff to assist in projects in these countries. The time frame for these projects could be between 2 and 5 years. Recharge salary costs 2-5 year Secondment Agreements Facing the Challenges of Doing Business in Africa Page 10

11 South Africa Tax System – Shohana Mohan Case Study – Checklist / Factors for Consideration (Outbound Expatriates) Immigration – Work permits/Visas – with which entity must the secondment contract be concluded? Employees are tax resident in South Africa. Taxable on worldwide income, subject to certain exemptions. Type of Assignment, i.e. Secondment / Transfer / Localisation. Who is the legal employer and does the substantive employment agreement hold in the case of dismissals etc. Will the days requirements, i.e. 61 consecutive and 184 aggregate days be met in a 12 month period Does the employee trigger tax residence status in the host country PAYROLL MANAGEMENT – will a split payroll be operated and will the employee maintain PENSION/PROVIDENT FUND contributions in SA. SOCIAL SECURITY considerations in host country What types of pay elements are to be included, i.e. hardship/cost of living allowances – will the tax be paid on behalf of employees Are there minimum wage requirements? Are there Exchange Controls to be considered both in SA and the host location Corporate issues – will presence of the employees create a permanent establishment risk in the respective host countries for JPS SA Facing the Challenges of Doing Business in Africa Page 11

12 South Africa Tax System – Shohana Mohan Case Study – Checklist / Factors for Consideration (Inbound Expatriates) Immigration – Work permits/Visas Employees are non resident for tax purposes in South Africa. Taxable on South African sourced income Type of Assignment, i.e. Secondment / Transfer / Localisation. Who is the legal employer and does the substantive employment agreement hold in the case of dismissals etc. Is there a DTA in place between South Africa and the country in which the employee is resident Does domestic law in the respective countries require withholding of tax Does the DTA apply and is the employee subject to PAYE withholding in South Africa Is a split payroll required to be operated Corporate issues – will presence of the employees create a permanent establishment risk in South Africa for JPS MNE Facing the Challenges of Doing Business in Africa Page 12

13 South Africa Tax System – Shohana Mohan Case Study – Solution… Facing the Challenges of Doing Business in Africa Page 13

14 Facing the Challenges of Doing Business in Africa South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates out of South Africa South AfricaMauritius/Botswana/Uganda/Zambia A Immigration Work permit applications should be processed before business case dictates urgency… B Contractual arrangements Secondment agreement from JPS SA to the relevant host country entity. A host country assignment letter should also be concluded with the employee to align certain host country conditions of employment, i.e. work hours D Tax / Payroll related considerations Employer should take global responsibility for the taxes to ensure optimal Compliance. Categorise assignment – into: Business traveller (1 – 3 months) Short-term ( months) Medium term (12 – 36 months) Long-term ( months) Page 14

15 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates out of South Africa… Facing the Challenges of Doing Business in Africa Page 15

16 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates out of South Africa … Facing the Challenges of Doing Business in Africa Page 16

17 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates out of South Africa… The payroll may be processed and managed in South Africa Certain countries allow for a split payroll method of remuneration Some countries do not allow operation of a split payroll, i.e. MAURITIUS requires either 100% salary is paid in SA or 100% paid in MAURITIUS In these countries payroll may be managed in SA and the taxes and statutory levies should be transferred to MAURITIUS The South African payroll data input (shadow payroll) should mirror the host country payroll input The shadow payroll is designed to capture the relevant pay items and ensure correct allocation is made of any hypothetical tax deductions Reserve Bank approval may be necessary to remit funds to the respective countries for the purpose of settling the payroll tax and related levies Facing the Challenges of Doing Business in Africa Page 17

18 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates into South Africa Mauritius / Botswana/ Zambia / Uganda South Africa A Immigration Work permit applications must be done well in advance – intra company work transfer permit may be applicable as it is least administrative and is valid for up to 24 months. However, may need to investigate whether employees have prior work history within the group. B Contractual arrangements Secondment agreements – legal employer remains outside South Africa. Dismissals etc. to be handled by home country. D Tax / Payroll related considerations Employer should take global responsibility for the taxes to ensure optimal Compliance. Categorise assignment – into: Business traveller (1 – 3 months) Short-term ( months) Medium term (12 – 36 months) Long-term ( months) Facing the Challenges of Doing Business in Africa Page 18

19 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates into South Africa… Facing the Challenges of Doing Business in Africa Page 19

20 South Africa Tax System – Shohana Mohan Case Study – Solution – Expatriates into South Africa… Facing the Challenges of Doing Business in Africa Page 20

21 South Africa Tax System – Shohana Mohan Case Study Solution – SUMMARY CONTRACTUAL ARRANGEMENTS IMMIGRATION TAX OPTIMISATION / PAY ELEMENTS DEFINED PAYROLL MANAGEMENT Facing the Challenges of Doing Business in Africa Page 21

22 South Africa Tax System – Shohana Mohan CONCLUSION THANK YOU! Facing the Challenges of Doing Business in Africa Page 22


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