HOW TO EFFECTIVELY MANAGE EXPATRIATE PAYROLLS? 6 September 2017 [Shohana Mohan, Johannesburg South Africa]

Transcription

1 HOW TO EFFECTIVELY MANAGE EXPATRIATE PAYROLLS? 6 September 2017 [Shohana Mohan, Johannesburg South Africa] 1

2 LET S TEST YOUR KNOWLEDGE ON EXPATRIATE TAX What does an expatriate mean? A a person who lives and works outside their native country B a person who lives and works in his or her native country C a person who transfers or sends money abroad For a South African national temporarily working outside South Africa, is he or she still required to contribute toward the UIF? A Yes B No What is the difference between a tax resident and nontax resident? 2

3 WHAT ARE WE SEEING MORE OF IN THE TAX SPACE? Regulatory compliance Promotion of tax compliance through a network of tax justice Working Groups OECD / AEoI Increase in audit activity Regulation of tax practitioners regulatory bodies propensity to engage in unethical behavior reduced TAA Tax and related defaults forming part of the boardroom agenda Cross-border activity on the rise AFRICA and other popular assignment destinations 3

4 THE PAYROLL PROCESS Significant challenge relating to communication (business case demands) Payroll, Finance and Human Resources should be a combined effort to streamline the payroll service offering Results in unclear / inconsistent treatment of inbound/outbound employees Ripple effect impact on encouraging mobility among assignees Compliance risk home & host locations Closing the gap 4

5 SOME EXPATRIATE TAX BASICS RESIDENT Worldwide income SA sourced income Tax base TO NON- RESIDENT RESIDENTS = Worldwide NON-RESIDENTS = SA sourced 5

6 WHO IS A TAX RESIDENT? Physical presence resident (inbound) > 91 days in current year > 91 days in 5 preceding years Aggregate of 915 days in five preceding years of assessment Not exclusively a resident of the home country in terms of the application of the DTA between SA and the other country (annual test) Ordinarily resident - Subjective test based on objective factors - Place a person would naturally and as a matter of course return to from wanderings 6

7 PHYSICAL PRESENCE RESIDENCE TEST 7

8 SOME OF THE KEY TAX CHALLENGES Trailing liabilities Social security mandatory? Who is liable to pay tax Tax Allowable deductions? Basis on which tax is levied (residence vs source) What constitutes taxable income? An example An individual is considered resident in Kenya if he or she has no permanent home in Kenya and is present in Kenya for 183 days or more during a fiscal year or for an average of more than 122 days in that year and in the two preceding years. If an individual has a permanent home in Kenya and spends time in Kenya, he or she qualifies as resident. 8

9 SOME OF THE BUSINESS CHALLENGES Encouraging mobility Parity among assignees working in different locations across Africa Potential double taxation timing differences due to different tax years Ensuring optimal tax and payroll compliance in home and host locations 9

10 PROPOSED LEGISLATIVE CHANGES IN SOUTH AFRICA IMPACT ON INBOUND AND OUTBOUND ASSIGNMENTS Residence basis (Worldwide ) Source basis (SA sourced) Repeal of foreign remuneration exemption - domestic law relief avoidance of double taxation in respect of foreign remuneration (services rendered outside SA) proposed effective date: 1 March 2019 (knock on effect on assignment costs monthly employees tax to be accounted on all remuneration derived), subject to a foreign tax credit (FTC) 12 September NT to provide feedback on submissions received Change in definition of provisional taxpayer inbound shadow payrolls impacted Relocation allowances removal of Commissioner s discretion to allow one month s basic salary as a tax-free allowance Foreign pension fund contributions now a taxable fringe benefit with no corresponding deduction 10

11 NEW WHITE PAPER: IMMIGRATION LAWS Skills shortage Upskilling not happening Closing the communication gap: HR (Immigration) & Payroll Alignment with Africa Brain drain 11

12 NEW WHITE PAPER: IMMIGRATION LAWS Critical skills: to be subject to a points based system Skilled foreign hires required to follow a plan to upskill locals Levy on the employing entity where upon annual review, no evidence of upskilling/training exists Permanent residence applications: to be subject to more objective tests and approval by Minister (periodic review of criteria being met) Preference to find hires to fill resource pool from SADC* regions first South African Development Community: Comprises 15 countries in Africa: Angola, Botswana, DRC. Lesotho, Madagascar, Malawi, Mauritius, Namibia, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe 12

13 A FEW PROBING QUESTIONS Is the expatriate a resident or non-resident Understanding the international assignment policy framework Applicable tax policy Unpacking the respective elements of pay 13

14 TAXATION POLICIES / INTERNATIONAL ASSIGNMENT POLICY Laizzez Faire: responsible for own taxes Tax Protection: company will only cover the tax in excess of home country liability Tax Equalisation: employer will assume responsibility for the home and host country tax liabilities. Premise: An individual should pay no more or less tax than had he remained in the home country 14

15 ELEMENTS OF PAY WHAT DOES THIS MEAN? Employee 個人負担 Employer 会社負担 Salary (taxable) Income Tax Residential Tax Health insurance Long care insurance Pension Unemployment insurance Health insurance Long care insurance Pension Unemployment insurance SOCIAL SECURITY CONTRIBUTIONS Policy of Insurance = taxable benefit in accordance with paragraph 12C of the Seventh Schedule benefits in respect of insurance policies Retirement reform taxable fringe benefit with no corresponding deduction 15

16 FOREIGN ELEMENTS OF PAY DISCLOSURE ON IRP5 base salary allowanace for local price differential overseas allowance hardship allowance additional hardship allowance for family separation(family) allowance secondment allowance adjustment for pension system change local payment (yen equivalent) incentive pay for employee stockholding retroactive adjustment of overseas salaries for revisions(yen currency) Lump-sum payment total a bonus(summer) bonus(performance) bonus(year-end) bonus(other) retirement allowance IRP5 source codes Foreign income source codes: Add 50 Example: =

17 LOCAL ELEMENTS OF PAY DISCLOSURE ON IRP5 housing etc. allowance local payment (local currency) retroactive adjustment of overseas salaries for revisions(local currency) children's education expenses health maintenance leave health insurance expenses medical expenses overseas transference expenses sundry expenses overseas business trip expenses expenses for operation of company vehicles house rent etc

18 BEST PRACTICE METHODOLOGY: ASSIGNMENTS TO AFRICA Payroll management: Shadow payroll (mirror host payroll) Host country payroll setup Payroll withholding tax (home and host) Planning phase Understand core business needs Duration of project Review policies to ensure: Consistency Tax optimisation Estimation of salary package: Build-up remuneration Home/Host tax liabilities Review International Assignment Policy (country specific) Formulate and design assignment build up model Review remuneration policies Review legal nature of contracts Nature of contracts: Secondment Transfer Localisation Country specific matrices detailing: Taxation of benefits/allowances Payroll obligations/requirements 18

19 TAX BASE... CERTAIN POPULAR AFRICA DESTINATIONS Angola Withholding on salaries and wages on a monthly basis Botswana Tax levied at source. Salaries and wages, including non-cash benefits subject to monthly withholding tax Congo, Republic Tax is levied at source. Casual workers are taxed at a rate of 15% DRC Ghana Kenya Lesotho Malawi Mauritius Tax is withheld at source by the employer Tax is withheld by the employer on a monthly basis relating to the tax due in a year of assessment. Tax is deducted by the employer at source on a monthly basis and is remitted to the KRA Tax withheld at source and remitted monthly Tax is withheld at source. PAYE is considered as a credit and any shortfall is funded upon assessment Tax is withheld at source and paid to the MRA on a monthly basis Mozambique Employment income and pensions is taxed separately from other income. Final tax is levied based on number of dependants Nigeria Rwanda Senegal Employers are required to deduct PAYE in respect of deemed remuneration (based on industry) PAYE withheld at source Tax is required to be withheld if the employer is resident of Senegal 19

20 TAX BASE... CERTAIN POPULAR AFRICA DESTINATIONS Tanzania Uganda Zambia Zimbabwe Monthly withholding under the PAYE system in respect of salaries paid by the employer Liable to tax at source. Normal PAYE withhodling is operated Employer is liable to withhold tax at source Employer is liable to withhold tax at source 20

21 KENYA SOME SPECIFICS Who is liable to pay tax? What is included in taxable income? Residents taxed on worldwide Income. For non-residents, the income sourced in Kenya. All cash and non-cash remuneration unless specifically excluded, including any and all allowances and benefits arising from employment. Irrelevant where the income is paid. Tax treatment non-cash elements of pay Housing: If lease is in the company s name, the higher of rent paid by the employer or 15% of employment income excluding the value of the housing premises If provided not in terms of an arms-length agreement, the fair market value of the premises or rent paid by the employer Employer-owned premises the fair market rental value Education: Education fees paid by the employer, dependent on the employer claiming a corporate deduction Fringe benefit tax is a tax on the EMPLOYER as opposed to a tax on the EMPLOYEE 21

22 KENYA SOME SPECIFICS Tax treatment non-cash elements of pay Furniture: 1 per cent of the cost to the employer (employer owned furniture) Deductions Contributions to a registered pension or provident fund in Kenya Stock options: Stock option plans are either registered or unregistered in Kenya. Where plans are registered, the taxable benefit is determined by calculating the difference between the market value on date of grant of the option/share and the consideration paid on date on which the option/share is granted. (MV Consideration paid) If the plan is not registered in Kenya, the fringe benefit is calculated based on the higher of the cost to the employer in granting the option/share and the fair market value. (Cost + MV of the option/share) The lesser of: Actual contribution made 30% of pensionable income Kshs per month Contributions to NSSF is also included Taxable Income Kshs 0 Kshs % Kshs Kshs % Kshs Kshs % Kshs Kshs % Kshs and above 30% Tax Rate 22

23 KENYA SOME SPECIFICS Social Security All individuals are liable to contribute toward the National Social Security Fund (mandatory) The calculation is based on salary/wages (all emoluments) payable in terms of a contract of employment 5% employer contribution + 5% employee contribution (up to a maximum of Kshs 200 each) Contributions are payable for each month before the 15 th day of the following month 23

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25 FOR MORE INFORMATION: SHOHANA MOHAN This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only. This publication should not be used or relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained in this publication without obtaining specific professional advice. Please contact [BDO South Africa] to discuss these matters in the context of your particular circumstances. [BDO South Africa], its partners, employees and agents do not accept or assume any responsibility or duty of care in respect of any use of or reliance on this publication, and will deny any liability for any loss arising from any action taken or not taken or decision made by anyone in reliance on this publication or any part of it. Any use of this publication or reliance on it for any purpose or in any context is therefore at your own risk, without any right of recourse against [BDO South Africa] or any of its partners, employees or agents. BDO South Africa is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. Copyright [September] [2017] [BDO South Africa]. All rights reserved. Published in [South Africa].