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Income Tax Calculations in South Africa: A Guide for Overseas Employers

Hiring employees in South Africa will mean that your company will need to learn the correct income tax calculations, both for compliance reasons and to make sure your employees are getting the compensation they expect.  Sometimes differences in tax rates and deductions from your home country, will mean that you have to adjust salary and payroll amounts.

If this is your first time hiring in South Africa, how will you know how to calculate and pay the correct tax every month from payroll?  We have put together this guide to get you started understanding the South African tax scheme.

South African Revenue Service (SARS)

SARS is the tax authority in South Africa and all employees will need to register by visiting a local branch in person to verify identity and bank details.  All other subsequent steps can be done online on the SARS website.

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Who Has to Pay Tax in South Africa?

Any employee that earns a salary in South Africa on a local payroll has to pay taxes at normal rates. Residents pay tax on worldwide income and non-residents pay tax only on South African income.  Fortunately, most expats will not qualify as tax residents, but will still need to rely on a tax treaty to avoid double taxation at home.

Case Example: Income Tax in South Africa

The individual income tax rates in South Africa range from 18% to a maximum of 45% for all employees.  This also applies to benefits and allowances, and we had a client with an employee who wanted to know why their tax was higher than expected.

We explained the reason was because the employee had been reimbursed for medical insurance through the payroll, and that is a taxable benefit in South Africa.  So, the tax was withheld, and the salary was ‘grossed up’ to make up for the difference.

Medical Tax Credit (MTC) Rates in South Africa

The MTC is a rebate given to taxpayers for fees paid to a registered medical scheme.  The rates are R310 per month for the taxpayer and R310 for the first dependent.  Additional dependents bring a credit of R209 per month.

Anything else you should know?

South Africa uses the PAYE system for tax withholding, but your employees only need to file a tax return if they earn more than R350,000.

Shield GEO Solution

If the nuances of South African tax laws seem difficult to manage, you may be tempted to hire a local accountant and still try to manage the payroll DIY.  But wouldn’t you like to have a more complete solution for all of your payroll, employment and tax challenges in South Africa?

That is the essence of the Shield GEO solution, where we support your employees in all areas with our in country experts and local employer of record in South Africa.  We make international employment simple by handling work permits, running payroll and withholding taxes for both resident and expat employees.

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Looking to hire an employee in South Africa? Get in touch.

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