South Africa proposes narrower PAYE rule for nonresident employers

Clause 2 would amend paragraph 2(1)(b) of the Fourth Schedule to the Income Tax Act 58 of 1962. It is a proposal before Parliament, not enacted law. The bill's general commencement rule would bring clause 2 into operation only on promulgation, and the bill does not provide a separate retrospective date for it.^[2]

Current rule and proposed condition

The current wording has been reconstructed from section 13 of the Tax Administration Laws Amendment Act 18 of 2023 and a review of the relevant later annual amendment Acts, rather than from a separately opened consolidated text. On that basis, paragraph 2(1)(b) currently reaches a nonresident employer conducting business through a permanent establishment in South Africa. Clause 2 would add that the employee's remuneration must be paid or payable by, or borne by, that South African permanent establishment.^{[2][3][4][5][6]}

Reason for the amendment

The explanatory memorandum says the present rule can impose a withholding obligation where a South African resident works abroad for a foreign employer whose South African permanent establishment is not connected with that employment. The proposed condition is intended to align the withholding obligation with the permanent establishment that bears the remuneration cost.^[2]

Implications for multinational payrolls

Foreign groups with a South African permanent establishment should map which entity and establishment pays, accrues or economically bears each mobile employee's remuneration. If enacted as introduced, the added cost-bearing test could remove some PAYE obligations where the South African establishment is unrelated to the overseas employment, but the bill does not itself determine every payroll-allocation question. Employers should continue applying the existing rule until Parliament enacts the amendment and it is promulgated.^[2][3]