Working for foreign companies as a South African, Part 2: You are now a Contractor
Welcome to part 2 of my financial & tax guide to working for foreign companies as a South African resident.
Disclaimer: I am not a financial adviser, lawyer, or qualified professional around these matters. Take this information as a launching point to do your own research and consult with professionals.
In part 1, I outlined the three main ways to get paid. The next step is how this new working arrangement changes your working relationship and tax status.
You are now a contractor
Since you will be working for a company that has no legal presence in South Africa, you can only be a contractor for them. This has a chain of consequences as we'll now see.
Firstly, as a contractor, you are not earning a salary. You are providing services to your client (company) and charging for that. The end result in your bank account might be the same, but it is treated differently.
Most notably, for paper trails and compliance, you will need to send an invoice to your company every month for your agreed upon income. To make life easy, just invoice in whatever currency the company is paying you.
Contractors are provisional tax payers
Since you are a contractor/freelancer in the eyes of SARS in this arrangement, you are considered a provisional tax payer, and need to register as such.
This changes how your tax is handled and filed, so I'd recommend getting an accountant to help you with the registration and tax submissions going forward. For more information see the TaxTim link above.
Provisional tax is a bit more admin in that you're now filing tax multiple times a year. This changes things, but can come with advantages.
领英推荐
You have to save your tax money
Firstly and most importantly: since you are not having your tax deducted from your income when you get paid, you need to plan ahead and save a portion of your income for paying tax. On average I'd say put away 1/3 of whatever you earn for tax.
There is a very nice benefit to this: By saving your tax money in a savings account, you can earn interest on it! The interest is treated the same as any other savings, i.e. taxed after the first R23,800 (at the time of writing) interest earned. It's not a life changing amount of earnings, but it's still "free" money you wouldn't earn as an employee.
You can deduct expenses as if you were a business!
Secondly, you can now deduct various expenses as business related. You are an entrepreneur if you're a freelancer, after all. New office supplies? Keyboard? Conference tickets, home internet, or training courses? All tax deductible expenses, so long as they relate to your work.
You are able to deduct other household expenses according to the fraction of your home that is your office, but SARS has far more stringent with this since lockdown, so I wouldn't bother. Speak to your accountant about what you can and can't deduct from your expenses.
My experience
While it's good practice and technically a compliance requirement, I've never been asked to produce any evidence of the invoices I've sent. Only for the company's sake I've had to create backdated invoices for their own accounting. Your mileage may vary.
In my experience, the benefit of getting paid in foreign currency is mostly around inflation. So long as the Rand continues to tank, you effectively get inflationary raises for free over the long term.
In the short-medium term however, highs and lows even out more than you'd expect. Foreign companies can have deeper pockets than South African ones for some roles, but it's not consistent. You're also going to be lacking employment protections as a contractor, so they can let you go on a dime. This has happened to a few remote workers in my network.
We've now covered getting paid as well as how it affects your employment and tax status. Of course, that's not the end of it however! Part 3 will go into more details on certain aspects of Parts 1 and 2, as well as provide the quick TL;DR version of the guide.
See you next time!