Like takes in cinematography, we have seen many iterations of the amendments to the immigration regulations this year. One of the concepts that has required a few takes is the remote working, or what is commonly referred to as the “digital nomad” visa.
New home affairs minister Leon Schreiber has further adjusted the criteria and conditions of the digital nomad visa in the third amendment of the immigration regulations, published on October 9.
Most notably, the income threshold to qualify for the visa has been reduced from the equivalent of R1m a year to the equivalent of R650,976 a year. The minister has also reverted to the previous version of the amendments in some respects — that is, the version that was published prematurely and subsequently withdrawn.
In particular, the somewhat clumsy reference to “foreign source income” concerning the nature of the work conducted by the foreign applicant that was included in the republished version of the amendments in May has been removed. So too has the reference to compliance with legislation governing the employment of workers in SA.
A digital nomad regime could trigger a tax liability in SA, both for the digital nomads themselves and the foreign employer.
Initially, the amendments provided for foreign remote workers to be exempt from registering with Sars if their visas were issued for a period of less than six months in a 12-month period. The period was then tightened to less than six months in a 36-month period and, rather than an automatic exemption, the regulations entitled the employee to apply to be exempted by Sars from registering as a taxpayer.
One of our concerns with these provisions was that while the exemption relates to compliance obligations, it in effect provided an exemption from income tax, which is not provided for in the Income Tax Act. While foreign remote workers who are tax residents in a country that has concluded a double-taxation agreement (DTA) with SA should qualify for tax relief, this does not apply to foreign remote workers who cannot rely on a DTA.
The third amendment now provides that foreign remote workers who are tax residents in a country that has concluded a DTA with SA will be required to register with Sars if they are present in the republic for longer than an aggregate period of 183 days during any 12-month period (which aligns with the terms of most DTAs).
Digital nomads from countries that do not have DTAs with SA will be required to register with Sars regardless of how long they remain in the country.
As indicated above, the third amendment also no longer refers to “foreign source income”, which in the context of tax means something completely different to what its presumed intention was in the previous version of the regulations.
Big question remains
Unfortunately, while the changes in the third amendment are to be welcomed, the legislature hasn’t yet addressed the main tax concerns for foreign employers: the risk that the remote worker will create a “permanent establishment” for the foreign employer.
The creation of a permanent establishment would not only oblige the foreign employer to register as an employer with Sars, but could potentially also trigger a corporate tax liability for it. The employer tax risks cannot be addressed by way of an amendment of the regulations; that would require tax legislative amendments.
Unfortunately, the draft tax legislation released earlier this year did not contain any proposals to address foreign employers’ tax concerns. The payment of skills development levies and unemployment insurance contributions relating to digital nomads is also still unclear.
Finally, despite the removal in the third amendment of the specific reference to SA employment legislation, foreign employers would still be well-advised to consider the possible employment law implications of digital nomad remote working arrangements.
While the digital nomad rules should attract more remote workers to SA, the programme will only achieve optimal success if the risks for foreign employers are addressed. Only then will it be ready for the big screen.
• Bouwer is senior consultant, and Loubser knowledge & learning lawyer: employment & data protection, at Bowmans SA.
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