The South African Digital Nomad Visa

By Dewald Pieterse and Dr Hendri Herbst

Introduction

South Africa has formalised its offering to the global remote workforce with the introduction of the Remote Work Visitor Visa, commonly known as the “digital nomad visa”. First mentioned by President Cyril Ramaphosa in 2022, this initiative aims to stimulate economic growth by attracting high-earning individuals employed by foreign entities to reside and spend in South Africa, contributing to the local economy and VAT revenues. The Minister of Home Affairs has described these visa reforms as “fit-for-purpose and market-friendly.”

This article delves into the specifics of South Africa’s Remote Work Visitor Visa, exploring its eligibility criteria, implementation timeline, and the opportunities it presents to global remote workers. However, it also sheds light on the potential tax implications and challenges tied to the visa’s requirements, particularly for self-employed individuals and those working for foreign employers without an established presence in South Africa.

After undergoing various iterations from 20 May 2024, the final version was gazetted on 9 October 2024, with the Department of Home Affairs (‘DHA’) publishing detailed requirements and information on the application procedure (the ‘DHA Documentation’).

Formally designated the “Remote Work Visitor Visa,” it falls under the Visitor’s Visa category, and is authorised specifically in terms of section 11(1)(b)(iv) of the Immigration Act 13 of 2002.

The DHA Documentation outlines core qualifying criteria:

• An income threshold requires applicants to demonstrate a gross annual income of no less than R650 796, substantiated by bank statements for the last three months.
• A fundamental requirement is that the applicant must work for a foreign employer, evidenced by “a valid contract of employment signed by both the applicant and the foreign-based employer.” This has significant implications for self-employed individuals.

The visa can be issued for up to three years and is renewable, subject to continued compliance.

Holders are authorised to work remotely from South Africa exclusively for their foreign employer and are prohibited from taking up employment with any South African entity.

Defining the “Digital Nomad” in the South African Tax Context

For this analysis, a “digital nomad” (or “nomad”) is a non-South African individual using technology to work remotely in South Africa for a foreign employer without a pre-existing South African operational presence (i.e. neither a branch nor a subsidiary). This distinction is vital as tax ramifications vary based on the employment structure and the extent of the employer’s prior South African nexus. Focusing on this common scenario allows for a clearer dissection of the tax risks which may arise from using the Remote Work Visitor Visa.

Visa Eligibility: The “Foreign Employer” Criterion and the Self-Employed

A significant eligibility hurdle is the requirement to work “for a foreign employer”, demanding “a valid contract of employment signed by both the applicant and the foreign-based employer” as per the DHA Documentation. This implies a traditional employer-employee relationship.

Consequently, the visa, as currently defined, does not appear to cater directly to self-employed digital nomads or freelancers. This interpretation, based on official sources, contrasts with some market commentary suggesting eligibility for freelancers. Until the DHA issues explicit guidance for freelancers, the stricter interpretation based on the “contract of employment” requirement is prudent.

A potential workaround involves a self-employed nomad incorporating a foreign company and being employed by it. However, this structure presents considerable tax complexities. Such a foreign company, directed by the nomad in South Africa, would likely have its place of effective management in South Africa, potentially making the company a South African tax resident subject to corporate income tax on its worldwide income.

The exclusion of a direct pathway for self-employed individuals is noteworthy given the visa’s economic objectives, as this group forms a significant part of the target demographic. While the South African Revenue Service (‘SARS’) might view self-employed structures as higher risk, the current criteria may limit the visa’s economic impact.

Tax Obligations of the Digital Nomad in South Africa

Non-resident individuals are subject to South African income tax only on South African-sourced income. The source of employment income is typically where the concomitant services are rendered. Consequently, remuneration for work physically done in South Africa is generally South African-sourced.

The primary double taxation mitigation for nomads from treaty countries is the applicable Double Taxation Agreement (‘DTA’). Most South African DTAs, based on the OECD Model Tax Convention (‘OECD MTC’), exempt employment income (under Article 15(2)) if:

1. the nomad is present in South Africa for no more than 183 days in any twelve-month period;
2. remuneration is paid by, or on behalf of, a non-resident employer; and
3. remuneration is not borne by a permanent establishment (‘PE’) of the employer in South Africa. If all conditions are met, the income is generally not taxed in South Africa.

SARS registration requirements under the visa are specified by the DHA in the Immigration Regulations:

• Nomads from treaty countries must register with SARS if their physical presence exceeds 183 days in any 12-month period; and
• Nomads from non-treaty countries must register with SARS by default, regardless of the duration of their stay.

It must be noted that although the Immigration Regulations specify the 183-day registration threshold for treaty country residents, the Income Tax Act 58 of 1962 (‘the Act’) itself lacks any such deferral provision.

The visa itself does not confer South African tax residency. However, prolonged physical presence can lead to tax residency under domestic law (in terms of the ‘ordinarily resident’ test or the physical presence test). The physical presence test is met if an individual is in South Africa for over 91 days in the current year, over 91 days in each of the five preceding years, and over 915 days in aggregate during those five preceding years. Meeting this test subjects an individual’s worldwide income to South African tax.

Nomads from non-treaty countries, or those from treaty countries not meeting all DTA exemption conditions, become subject to South African income tax on their SA-sourced employment income from the outset. They typically register as provisional taxpayers, making bi-annual tax payments. This creates a significant double taxation risk if their country of residence also taxes worldwide income without adequate relief.

Tax and Compliance Burdens for the Foreign Employer

A nomad’s presence in South Africa can trigger tax and compliance obligations for their foreign employer, largely dependent on whether the nomad’s activities create a PE.

The existence or otherwise of a PE is critical for determining the tax consequences of a nomad’s visit to South Africa. If a PE exists and bears the nomad’s remuneration costs, a key DTA exemption condition (article 15(2)(c)) is unmet, potentially making the nomad’s remuneration taxable in South Africa even if present for less than 183 days.

If a foreign employer conducts business through a PE in South Africa, paragraph 2(1) of the Fourth Schedule to the Act mandates the withholding of PAYE from remuneration paid by the employer to employees working in South Africa. This applies if a PE exists under domestic law (which incorporates the OECD MTC’s PE definition), irrespective of whether a PE exists in terms of a DTA. Amendments on 22 December 2023 clarified that only foreign employers with a PE or a so-called “representative employer” in South Africa are obligated to register as an employer with SARS, and hence, must deduct PAYE from remuneration paid to employees in South Africa.

If no PE exists, the PAYE withholding obligation generally does not rest with the employer; instead, nomads themselves are responsible for filing and paying bi-annual provisional tax.

Regarding Unemployment Insurance Fund (‘UIF’) contributions, section 4(1)(d) of the Unemployment Insurance Contributions Act 4 of 2002 (which provided a potential exemption for employees on contracts requiring repatriation after termination) was repealed effective 1 March 2018. Consequently, foreign nationals working in South Africa (including nomads) and their employers are generally liable for UIF contributions except in the unlikely event that another exemption applies.

The Skills Development Levy (‘SDL’) applies once an employer’s total payroll exceeds R500,000 per annum. As the visa’s minimum income requirement is in excess of this threshold, SDL will necessarily be applicable.

Foreign employers, even without a PE, are therefore generally liable for UIF and SDL contributions in relation to employees working in South Africa. There is thus a legislative anomaly in that a foreign employer without a PE in South Africa is required to make SDL and UIF contributions despite not being required to withhold PAYE. Such employers may therefore have an employees’ tax registration obligation with SARS, despite not being obliged to withhold PAYE. This “statutory mismatch” can deter foreign employers due to administrative complexities arising, which is unfortunate since the amounts in question are invariably relatively small (both UIF and SDL amounting to a 1% contribution).

To comply with employees’ tax obligations (namely PAYE withholding where a PE exists, and SDL/UIF contributions regardless of the existence of a PE), a foreign employer –

• needs to register as an “employer” with SARS, which entails registering as an external company with the Companies and Intellectual Property Commission so as to be able to obtain a South African income tax reference number, and
• needs to open a South African bank account.

Using a local so-called “Employer of Record” is a potential workaround but requires careful legal consideration due to co-employment risks.

The Spectre of Permanent Establishment Risk for Foreign Employers

A pre-eminent risk for foreign employers is the inadvertent creation of a PE in South Africa, granting South Africa taxing rights over the profits attributable to such PE and triggering compliance burdens such as PAYE withholding obligations, corporate income tax returns and liability, and transfer pricing considerations.

Inadvertent, undeclared PEs can lead to SARS levying penalties and interest, which can be substantial. Furthermore, deliberate evasion could theoretically lead to criminal proceedings. It is therefore vital that a foreign employer has a clear understanding of whether a PE is created in South Africa by the nomad’s activities.

A PE is primarily “a fixed place of business through which the business of an enterprise is wholly or partly carried on” (as per article 5 of the OECD MTC, incorporated into the Act). This excludes places maintained solely for “preparatory or auxiliary” activities.

A nomad’s workspace, such as a home office, co-working space, or hotel room could constitute a fixed place of business and thus a PE if the place is at the employer’s disposal, which typically entails that it is paid for or subsidised by the employer and used for core business activities. Employers must exercise caution not to enter into arrangements implying control over the nomad’s South African workspace if core functions are performed there.

An agency PE per article 5(5) of the OECD MTC can arise if the nomad habitually concludes contracts or plays the principal role leading to their conclusion in the name of the enterprise, unless they relate to aspects which are of a preparatory or auxiliary character, or the agent is an independent agent in terms of article 5(6). Employers should therefore take care to limit nomads’ authority to conclude and negotiate substantive contracts.

Although not present in the OECD MTC, so-called service PE clauses can be found in some of South Africa’s DTA’s (such as those concluded with the United States of America (in article 5(2)(k)) and the United Kingdom (in article 5(3)(b)). A service PE typically arises where an enterprise renders services in South Africa through employees for a period exceeding a given threshold (commonly 183 days in any 12-month period) for the same or a connected project.

This can occur even without a fixed place of business and in the absence of any contract being concluded or negotiated by the nomad. Skilled nomads (from treaty countries with a service PE clause in that country’s DTA with South Africa) who provide specialised services are especially prone to trigger a service PE if the time period threshold is exceeded. This is often a “hidden trap” when employers assess PE risk with reference only to the domestic law definition or standard OECD MTC principles.

If a PE exists, South Africa can tax business profits of the foreign employer attributable to such PE in terms of article 7(1) of the OECD MTC. Attribution is based on the “separate and independent enterprise” principle, often requiring complex functional analysis and transfer pricing adjustments, thereby increasing the compliance burden.

Mechanisms for Eliminating Double Taxation

If the nomad or employer faces tax in South Africa on income also taxed in their country of residence, relief is typically available in terms of the applicable DTA’s article 23 providing for the elimination of double taxation, usually through either a foreign tax credit or exemption method. The specific method depends on the applicable DTA and the domestic law of the country of residence.

Without a DTA, the risk of unrelieved double taxation is substantially higher, potentially making it financially unviable for nomads to work from South Africa.

Relying on DTA relief requires proactive compliance, accurate PE determination, correct profit and income calculations, as well as adherence to procedural requirements. Missteps can lead to disputes, denial of relief, penalties, and interest.

Conclusion: Balancing Opportunity with Prudence

South Africa’s digital nomad visa is attractive, but its allure must be weighed against complex tax risks and compliance burdens.

For the nomad, key issues to consider are South African tax liability criteria, SARS registration obligations (183-day rule for nomads from treaty countries; immediate registration for nomads from non-treaty countries), provisional tax obligations, and the risk of becoming a South African tax resident through prolonged periods spent in South Africa.

For the foreign employer, the primary risk is the inadvertent creation of a PE (whether a fixed place PE, agency PE, or service PE for some treaty countries), leading to South African corporate tax and increased compliance obligations, including the obligation to withhold PAYE, but more importantly, the potential obligation to file returns and pay taxes itself. Even without a PE, employers face SARS registration as employers and SDL/UIF contribution obligations.

While the visa aims to be “fit-for-purpose and market-friendly”, some aspects may hinder these goals and contribute to low uptake. Time will tell whether further amendments are made, but refinements to the visa and surrounding tax landscape could include:

• Explicit expansion of the visa to include self-employed or freelance nomads;
• Streamlining foreign employer compliance in scenarios where there is no PE, as registration as an employer merely for UIF and SDL is overly burdensome for little pecuniary reward to South Africa; and
• Harmonising the SARS registration rules in the Immigration Regulations and the Act.

The interplay of domestic tax law, DTAs, and practical complexities of remote work,  necessitates that both nomads and employers obtain comprehensive professional tax advice before making use of this visa. Decisions as to the details require informed analysis and proactive risk management.

With careful planning, the tax complexities discussed above need not deter use of the visa, and South Africa’s bountiful opportunities can be enjoyed.

Contact for Assistance

Should you be an existing or prospective digital nomad, or an employer considering allowing employees to utilise the South African Remote Work Visitor’s Visa, and you require any assistance in navigating the domestic and international tax landscape in this regard, do not hesitate to reach out to us for specialised and tailored advice.