Where a South African Company pays an Employee who qualifies as a non resident in terms of SARS legislation, yet the SA Company does deduct PAYE, is the taxpayer exempt from Local taxation if the ship on which he travels is a foreign? The vessels are fore
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Generally, as far as employment on a ship is concerned, the source of the services is not the determining factor. You however, need more information before you can correctly advise your client or the parties here.
We accept that the individual, the employee, concerned, is not ordinarily resident in the RSA or is a person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the governments of the RSA and that other country for the avoidance of double taxation.
The resident status of the individual may however not be important – unlikely in your scenario. This is because it is common, where treaty countries are involved, for “remuneration derived in respect of an employment exercised aboard a ship … operated in international traffic, or aboard a boat engaged in inland waterways transport … to be taxed in the Contracting State in which the place of effective management of the enterprise is situated.”
The currency of payment, or the place of payment, is also not relevant to determine the tax consequences of the amount.
You refer to the fact that the “vessels are foreign flagged” and then that it is “a local ship”. We don’t know if the ship is a “South African ship”, i.e. a ship which is registered in the RSA in accordance with Part 1 of Chapter 4 of the Ship Registration Act, 1998 – see section 12Q of the (RSA) Income Tax Act. It is important to clarify this as well. You’ll notice that the section 10(1)(o)(i) exemption from normal tax depends on how the ship is engaged – either in the international transportation for reward of passengers or goods; or in prospecting, exploration or mining from the seabed outside the RSA. the individual must then be employed as an officer or crew member solely for purposes of ‘passage’. See interpretation note 34, issue 2, for the practice generally prevailing in this regard. If the individual is an officer or crew member of a South African ship, section 10(1)(o)(iA) will apply, if the ship is engaged in international shipping (a defined term) or in fishing outside the RSA. See interpretation note 96, for the practice generally prevailing in this regard. (Section 10(1)(o) in the RSA Income Tax Act).
If the exemption applies, there will be no employees’ tax to be withheld by the RSA employer.
With regard to both these exemptions, the practice generally prevailing is that the “potential for an exemption under section 10(1)(o)(i) (or (iA)) does not automatically waive the obligation of an employer to deduct or withhold employees’ tax under the Fourth Schedule. An employer that is satisfied that the provisions of section 10(1)(o)(i) (or (iA)) will apply in a particular case may, however, elect not to deduct or withhold employees’ tax in a particular case.”