South Africa payroll and tax overview.

At the southern edge of continental Africa, South Africa is a country, rich in natural resources, and has long been considered an important international business destination. A multicultural and multiethnic society, South Africa emerged from a colonial past to develop a strong regional economic presence. At the end of apartheid in 1991, reforms were introduced to reduce inflation and attract foreign investment - since then, South Africa’s economy has grown in sophistication and strength to become the second-largest on the continent, tripling GDP to around $400 billion. Key sectors of the South African economy are mining and agriculture, but emergent fields like manufacturing, real estate, pharmaceuticals, energy and financial services, are growing in significance. Tourism is also becoming an important sector in South Africa, supporting over 10.3% of the country’s jobs. South Africa is a member of the United Nations and the African Union, and in 2018, was ranked 82 on the World Bank’s Ease of Doing Business Survey.

Why invest in South Africa?

South Africa is a growing, promising market economy, with a variety of opportunities for investors:

• Economic policy: South Africa has been undergoing economic reform since the mid-nineties in an effort to reduce taxes and tariffs, narrow the deficit, and relax regulations on business. Important initiatives like the National Development Plan, the New Growth Plan and the Industrial Policy Action Plan aim to stimulate growth, reduce unemployment and introduce investment into the business landscape.
• Business environment: South Africa’s Johannesburg Stock Exchange is ranked amongst the top 20 in the world, and has harmonised its listing processes with the London Stock Exchange. The World Economic Forum ranked South Africa 1st in its 2015-16 global Competitiveness Index, while the World Bank ranked it 82nd (out of 190) for Ease of Doing Business in 2018.
• Cost of business: The exchange rate in South Africa makes it an ideal location for foreigners to set up a business - and relocate. Favourable oil and energy prices, along with competitive communication costs make business operations easier, while a corporate tax rate of 28% compares favourably to similar emerging markets.
• Location advantage: South Africa represents a gateway to Africa, with excellent access to neighbouring markets of Botswana, Namibia, Mozambique, Zimbabwe, Lesotho and Swaziland. Air and sea links open South Africa up to international markets, while membership of the BRICS group (Brazil, Russia, India, China and South Africa) promises ongoing, globe-spanning trade possibilities.
• Emerging industries: Beyond mining and agriculture, South Africa offers exciting investment potential in emerging modern industries, including high technology sectors like scientific equipment, energy, telecommunications, machinery, and IT. International tourism in South Africa is also becoming extremely popular.

Foreign Direct Investment in South Africa

South Africa has attracted more foreign inward investment than any other country in the continent for the last five years. Investment has been secured by the government, in respect of social and political reforms that have provided a more stable setting for foreign multinational corporations.

Registering a Company and Establishing an Entity in South Africa

A company is required to have a legal entity established in order to process a payroll.

All taxes deducted must be paid over to South African Revenue Services (SARS) and can only be done once the entity is registered with SARS. All companies must have a physical business address and local bank account

The timescale for completion of this process and a list of the relevant registrations is outlined below:

• Registration with the Registrar’s office = one - six months
• Registration with SARS for company income tax = one - six months
• Registration with SARS for VAT = one - six months
• Registration with SARS for PAYE/SDL/UIF = two - three months
• Registration with the DOL for Workman’s Compensation = one - six months
• Registration with the DOL for Unemployment benefits = one month

Once the legal entity is established, the company has to complete all payroll related statutory registrations.

It is imperative that the applications for payroll related registrations are completed in full.

From the time the documentation is submitted to receiving a registration number takes 21 days. This is the time the statutory bodies take to process the registration application. If the documents are not completed in full, the applicable authority will reject the application and it will need to be resubmitted with a further waiting time of 21 days, hence the importance of having everything correct before submission.

The client must be registered for the following:

• PAYE (employees’ taxes)
• UIF (unemployment insurance)
• SDL (skills development levy)
• OID (occupational injuries and disease insurance)

Should the company commence payment of the employee before the registrations are complete, the statutory bodies will charge penalties of 10% plus interest of 10.5% p.m. for all payments that should have been made while waiting for the registration numbers. It is not possible to make payments to the statutory bodies without a registration number. Due to this situation, it is good practice to get the registration process underway at least three months before the company intends to start paying employees.

Business Banking in South Africa

It is not mandatory to make payments from an in-country bank account. Payments can be made from overseas to the employee’s local bank account.

What Are the Working Days and Working Hours in South Africa?

The working week in South Africa is Monday to Friday. The maximum number of hours that can be worked per week is 45 and no more than nine hours per day.

Overtime can be worked in accordance with an agreement. The maximum overtime that may be worked is 3 hours a day or 10 hours a week; this again must be in accordance with an agreement. The maximum number of hours (normal plus overtime) that can then be worked by an employee in a day is 12 hours.

Basic Facts about South Africa

General Information

South Africa lies at the southern edge of Africa, with the South Atlantic Ocean to the west, and the Indian Ocean to the east. Sharing its northern land border with Namibia, Botswana, Zimbabwe, Mozambique, and Swaziland, South Africa also surrounds the kingdom of Lesotho, and is a one of the most populous nations in both Africa and the world. After archaeological surveys discovered some of the world’s oldest human fossils there, South Africa became known as the ‘Cradle of Humankind’ - and subsequent research revealed the development of prehistoric civilisations at several locations. A varied, temperate climate encourages vast biodiversity: South Africa is home to numerous national parks and protected zones which showcase areas of breathtaking natural beauty to visitors from across the world. South Africa is a parliamentary republic - the ruling African National Congress party has held the balance of power since the end of apartheid in the early nineties.

Full Name: Republic of South Africa

Population: 58.56 million (UN, 2019)

Capital: Pretoria (Executive Capital); Cape Town (Legislative Capital)

Primary Language: 11 official languages including English, Afrikaans, Sesotho

Main Religion: Christianity, Islam, Indigenous beliefs

Monetary Unit: 1 Rand = 100 cents

Main Exports: Gold, Diamonds, Metals & Minerals, Cars, Machinery

GNI Per Capita: US $13,090 (World Bank, 2017)

Internet Domain: .za

International Dialing Code: +27

The tax year runs from 1st March to 28th February. Anyone with a SA ID can register on South African Revenue Service (SARS) and use e-filing to do these filings.

Each client may, after being registered with SARS and Unemployment Insurance Fund (UIF), transfer their responsibility to their payroll provider, who will then, on their behalf, complete and submit the monthly, bi-annual and annual returns. If the payroll provider is not a registered tax consultant agency, they may submit returns as part of their service, when compelled and authorized by the client.

All taxes deducted must be paid over to SARS and can only be done once the entity is registered. The company must have a physical business address and local bank account.

There is a 10% penalty on outstanding amounts (either income tax or social security) as well as interest at the rate to be determined at that specific period in time (currently 10.5%).

Income Tax in South Africa

The employer must be registered for PAYE (Pay as You Earn)/SDL/UIF with SARS. The employee is responsible for registering him/herself for income tax with SARS. It is the employer’s responsibility to obtain the employee’s income tax reference number before any payments are allowed to be made to the employee. It is the employer’s responsibility to calculate taxes as per the statutory tax tables and to withhold such taxes from the employee’s salary and to pay it over to SARS every month.

It must be paid to SARS before/on the 7th day of the following month; if the 7th falls on a weekend then on the Friday preceding the weekend.

Social Security in South Africa

The employer must be registered for UIF with both SARS and the DOL. The employer must deduct 1% of the employee’s taxable earnings, currently capped at R148.72 per month, as contributions towards the Unemployment Insurance Fund. The employer must equal this 1%. The total of the 2% contributions, together with the taxes, as well as the 1% Skills Development Levy (SDL), must be paid over to SARS every month.

Social security contributions must be paid before or on the 7th day of the following month to SARS; if the 7th falls on a weekend then on the Friday preceding the weekend.

Reporting Tax in South Africa

Monthly EMP201 Tax Return

The following information is required to complete the document:

• Total amount of PAYE withheld from employees
• Total amount of SDL employer contributions
• Total amount of employee and employer contributions towards UIF

The documents are required to be submitted to SARS electronically through e-filing.

They must be submitted before the 7th day of the following month; if the 7th falls on a weekend, then on the Friday preceding the weekend. The documents can be submitted by anyone who is registered on e-filing to receive the monthly EMP201 returns from SARS on their e-filing profile.

The EMP201 is signed electronically by the person who submitted the return through e-filing.

Bi-Annual EMP501 Tax Reconciliation

The following information is required to complete the document: -

• Total amount of PAYE, SDL & UIF withheld from employees and paid over to SARS for the first six months of the tax year (March to August) and then later again (February) for the full 12 months’ period.

The documents are required to be submitted to SARS electronically through Easyfile before 30th May each year.

The documents can be submitted by anyone who is registered on E-Filing and Easyfile to receive the Annual EMP501 return from SARS and to submit it electronically through Easyfile to SARS. It is signed electronically by the person who submitted the return through Easyfile.

Annual WCA Workman’s Compensation Return

The following information is required to complete the document:

• Gross remuneration for the full tax year capped to the maximum WCA amount per employee and the number of employees per month for the current tax year as well as an estimation for all of the before-mentioned for the following tax year.

The documents are required to be submitted to the Department of Labor (DOL) in person on the 31st March each year.

Department of Labour introduced the submission of Returns of Earnings online; should register on the Department of Labour website and submit returns at CF-Filing. https://ufiling.labour.gov.za/uif/

The documents can be submitted by in person or electronically by either the employer or payroll partner.

A representative or the employer must sign the original bar-coded return.

UIF submission

The following information is required to complete the document:

• Start date
• End date
• Reason of exit per employee

The documents are required to be submitted to the UIF office electronically before the 7th day of the following month. The documents can be submitted by either the employer or payroll partner by email.

New Employees in South Africa

All employees need to register for income tax with SARS. The employer or payroll partner can do this on their behalf through SARS E-filing. This must be done before the first payment is made to the employee.

The following information is required to set up a new start:

• Company Number
• Employee Number
• Employee Title
• Employee Initials
• Employee Full Name
• Gender
• Marital Status
• Nationality
• RSA ID Number (Social Security)
• Date of Birth
• Passport No
• Address
• Employee Start Date
• Permanent/Temporary
• Job Title
• Annual Salary/ Hourly Rate/Daily Rate
• Bank Name and Details
• Account Name/Type
• Income Tax Reference Number
• Cost Centre Number
• Name of Cost Centre
• Annual Leave Entitlement

Expat new employees are required to provide the following documentation:

• Copies of Signed Contract
• Work Permit
• Passport
• Income Tax Reference Number

Leavers in South Africa

It is common practice to pay the leaving employee on their final day, although there is no specification set out. It is mandatory to issue form UI19 to leaving employees: this is a form the employees can take to the UIF department to claim unemployment.

Payroll in South Africa

Employers in South Africa have monthly withholding obligations: income tax is deducted from employees’ salaries via the PAYE system, and paid to the South Africa Revenue Service (SARS). Social security must also be taken into account during the payroll process: contributions from both employer and employee include the Unemployment Insurance Fund (UIF), the Workmen’s Compensation fund, and any relevant medical and life insurance schemes. Every time employees are paid, they must be issued with a payslip containing details of their pay, and any deductions made.

Businesses which employ at least one employee must register with SARS to set up their PAYE system. The residency status of an employee affects their income tax deductions, and should be taken into account when processing payroll. Since South Africa’s tax and legislative environment can be challenging, especially for expat businesses with global workforces, the payroll process can be outsourced to a third-party company to help ensure compliance and deliver an efficient level of service.