How are you taxed when working for an overseas company?

It’s become commonplace for companies to hire foreign employees who work for them remotely. But does this mean you will be taxed locally, or can you opt to pay taxes towards the company’s base country? 

We got in touch with a tax expert to find out where your tax liability lies. We also had a look at the most cost-effective ways to get paid when your income is derived offshore.

Tip: Make sure you’re investing part of your income so that your wealth grows. Click here for more.

Are you taxed locally or internationally?

According to Marty Santana, tax specialist of global employer services at BDO South Africa, if you’re a South African tax resident, you’re taxed on your worldwide income. In other words, if the services are rendered in South Africa then the income is taxable locally.  

He explains that if the work is on a freelance basis, the local person doing the work must be registered as a provisional taxpayer.

“They must submit a provisional return in August and February to disclose the estimated income earned in the current financial year and pay the tax over to SARS twice a year,” says Santana.

“Failure to register as a provisional taxpayer can result in penalties being levied for non-submission of provisional returns and late or non-payment of provisional tax,” he warns.

However, he adds that, as a freelancer, you may be able claim the expenses you incurred in production of the work. This means you could get money back from SARS at a later stage.

READ MORE: Complete guide on personal income tax

Similarly, if you’re a full-time employee for a foreign company, Santana explains that the important factor to understand is whether you have broken tax residency in South Africa or not.

“Taxes are calculated in the normal manner for salaries. However, if you qualify in terms of days spent out of South Africa, which is more than 180 days, of which 60 days are continuous, you may qualify for exemption of the remuneration for the first R1,250,000,” says Santana.

He recommends getting official tax advice in order to establish whether you’ve broken tax residency. If you have, you’ll need to have confirmation of the date and be aware of the capital gains implications.

“Should you remain a resident, you need to know how the offshore income must be disclosed, what information you need to retain to claim the foreign remuneration exemption, and whether you should be a provisional taxpayer, which comes with other requirements as well,” says Santana.

How can you get paid by overseas companies?

When working for a foreign employer, you can get paid through an intermediate organisation, which will assist with currency transfers and reduce banking costs.

The following are the most popular organisations you can open an account with:  

• PayPal
• TransferWise
• Skrill
• Payoneer
• Exchange4Free

When comparing each of these, make sure you have a look at what percentage they will subtract for transfers, as well as exchanging currencies. It’s also good to take note of which currencies they work in, and whether they would be able to supply you with a debit card.

Santana says that although money can also be paid directly into your South African bank account, this is usually considered the least effective method because of the amount of money lost in bank charges. To find out how much you’d pay, get in touch with your bank directly.

“Sometimes, if the amounts are substantial, you can negotiate with the bank for better exchange rates,” says Santana.

When last did you compare your bank costs with other accounts? Click here to do that now.