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International Assignments
EXPATRIATE BULLETINSouthern African Edition Autumn 2006
In this issue we look at skill
shortages, foreign workers and
immigration laws; the
implications for an employer if
an expatriate passes away
while on assignment; and the
tax treatment of the provision
of accommodation to an
expatriate on assignment in
South Africa.
March 2006
2
A growing number of South African companies are bringing foreign skills
into the country due to a lack of the requisite qualifications and experience
locally. But awarding tenders or partial tenders to foreign contractors can
present problems, notably in terms of getting permission for such
contractors to bring their staff into the country to work on the contract.
South African law states very clearly that no foreign national may be in
the country in contravention of the Immigration Act and Regulations –
and if they are, they can be deported summarily. In addition, those
foreign nationals that are allowed into the country must abide by the
strict terms and conditions of their permits.
South African companies need to be aware that awarding a tender to a
foreign entity does not entitle that foreign entity to simply import labour
as and when it pleases.
There is a process to be followed and approval must be obtained from
the Departments of Home Affairs, Labour, and Trade and Industry. This
process can be time-consuming, and can often lead to delays in the
completion of a project – with costly penalties being levied against the
parties concerned.
For the necessary immigration permission to be granted, a clear case
needs to be submitted to the authorities, detailing project timeframes
and the workers’ recent experience of similar projects.
South African companies should be careful not to be seen to be aiding
and abetting illegal foreigners by entering into agreements with them to
conduct any type of business. Companies can break the law if, for
example, foreign nationals they make deals with are in the country
without the correct permit.
There are considerable advantages to skilled foreigners entering the
country, such as expediting new projects and transferring skills into the
local labour pool. However, the downside to not following correct
immigration procedures and falling foul of the law is also significant.
Long-term employment opportunities could be lost and foreign
companies with rare expertise could be deterred from tendering for
projects in South Africa.
Jaco van der MerweManager
Skill shortages, foreign workers and immigration laws
With foreign workers increasingly being deployed on complex South African development projects, the
implementation of good immigration management systems has become a business priority.
3
There are serious implications for an employer if an expatriate passes away while on
assignment. This is why it is necessary for an employer to plan for that possibility and
to be pro-active rather than reactive.
Nowadays the threat to expatriates’ lives is
greater than ever before owing to factors
such as terrorism, kidnapping, natural
disasters, civil unrest and disease. It is
important for employers to review policies
and practices and consider how they could
be improved in the light of reality.
One of the main problems that can arise is
the treatment of the expatriate’s estate by
the host jurisdiction.
While it is not the responsibility of the
expatriate’s employer to ensure that he or
she has a written will, the employer should
raise the issue in a pre-departure meeting
and inform the expatriate that different laws
from those in force in the home country may
apply in the host country.
A will prepared under the laws of the
expatriate’s home country may, at worst, be
invalid under the laws in the host country.
Even if the host country recognises the will,
certain aspects of the will may be
unenforceable.
This could cause tremendous financial and
other strain for the surviving family
members, and could lead to the family
incurring substantial legal costs while trying
to sort out the situation.
Closely tied to the issue of wills and estate
planning is the possibility of unanticipated
additional taxes. Many countries, especially
in the developed world, impose “death
taxes” in a variety of forms (some on the
Death and taxes - a universal dilemma
4
estate of the deceased, and others on the
beneficiaries of the estate of the deceased).
Careful planning can often vastly reduce
these taxes.
While many countries have tax treaties to
avoid double taxation, an existing treaty
does not necessarily mean that it will be
easy to determine which of the two
jurisdictions (or more, depending on asset
location) has primary taxing rights. The
situation is often complicated by the
location of assets, the citizenship of the
deceased, and where the deceased was
actually domiciled or resident at the time of
death.
The employer’s expatriate policy should
address issues relating to the estate of the
expatriate, as well as what specific
provisions relating to the expatriate’s
package (including repatriation) will be
applied for the benefit of the expatriate’s
family.
The employer’s expatriate tax policy should
specify which taxes are covered by the
policy. By clearly stating that “death taxes”
are not covered, it will remove the financial
burden from the employer and emphasise to
the expatriate that he or she must be
responsible for making sure that his or her
family and beneficiaries are protected from
additional taxation.
Death is never an easy subject to face, but
the problems of such a grave event are
multiplied when the deceased is an
expatriate without a will.
Georgia Frangou
Senior Manager
One of the main problems that can arise is the treatment of the expatriate’s estate by
the host jurisdiction.
5
Provision of accommodation to expatriates
For many years there has been uncertainty regarding the tax treatment of the provision of
accommodation to an expatriate on assignment in South Africa.
The legislation dealing with the
taxation of fringe benefits provides
that no value shall be placed on
accommodation away from an
employee’s usual place of residence
provided by his employer while such
employee is absent from his usual
place of residence for the purposes of
performing the duties of his
employment.
The main areas of debate have
typically focused on the definition of “the
usual place of residence” and whether the
usual place of residence moves to South
Africa when the expatriate is assigned to
South Africa. Over the years, SARS has
issued various rulings on the matter and
allowed the accommodation to be
provided for free for limited periods in
some circumstances.
The matter has very recently been before
the Tax Court in Cape Town where it was
held that a person’s usual place of
residence is synonymous with his or her
“ordinary residence”, which in the case of
an expatriate assignment generally will be
the individual’s home country. This case
appears to provide further weight to the
argument put forward for many years by
PricewaterhouseCoopers that the
provision of accommodation to
expatriates in certain circumstances
should be regarded as not taxable.
Whilst this case will certainly be welcomed
by employees, some notes of caution
should be sounded. Firstly, it
is not clear whether the case
will be appealed by SARS
and secondly, the case was
very specific to the facts at
hand and the individual
clearly remained employed
and ordinarily resident in the
UK. Prior to making changes
to compensation policies as
well as changes to the tax
treatment of accommodation
through the payroll, HR and
tax manager should seek
professional advice to
ascertain the appropriate tax
treatment.
James WhitakerAssociate Director
The Cape Town
Tax Court
recently held
that a person’s
usual place of
residence is his
or her “ordinary
residence”,
which in the
case of an
expatriate
assignment will
be the
individual’s
home country.
6 Editor: Georgia Frangou, IAS Pretoria
Design and layout: Carol Penny, Tax Services Johannesburg
For further information please contact:
Cape Town James Whitaker (senior manager) [email protected]
Johannesburg Alan Seccombe (partner) [email protected] Seegers (partner) [email protected] Frangou (senior manager) [email protected] Duffy (senior manager) [email protected]
Pretoria Georgia Frangou (senior manager) [email protected]
The Expatriate Bulletin is designed to keep you abreast of developments and is not intended to be a comprehensive statement of the law. It should not be reliedupon as a substitute for specific advice in considering the tax effects of particular transactions. No liability is accepted for errors or opinions contained herein.
Partners in Africa conference – connecting our clients to thelargest tax network in Africa
The third Partners in Africa
conference titled “Connected
Africa – Risks and rewards” was
held recently at Emperors Palace
in Gauteng. This conference is
firmly established as the annual
premier tax, human resources
and business conference in
Africa. Over a hundred clients
representing 50 local and
international companies attended
the two day conference. PwC
Partners and staff from 16
African countries were present as
well as PwC partners from the
UK, USA and the Netherlands.
The conference attendees had the
option to choose from 25 workshops
covering corporate income taxes,
personal income tax, indirect taxes,
HR and accounting issues arising
from doing business in Africa. In
additional to PwC staff, workshops
were presented by Group 5, ECA,
International Labour Organisation
(ILO) and National Treasury. From an
expatriate tax perspective, Georgia
Frangou ran a workshop on
expatriate policies and Alan
Seccombe reviewed the taxation of
short term assignees and labour
brokers in Africa. The country desk
Expo over lunch time on first day
also attracted a lot of attention as
clients had the opportunity to interact
with almost 70 PwC delegates from
the African countries represented.
Five country specific workshops
detailed the tax and legal aspects of
investing in Angola, DRC,
Mozambique, Nigeria and East Africa.
A workshop on tax issues relating to
mining operations in certain African
countries was also held.
The keynote address was given by
Mr Wilfred D Kiboro, group CEO of
the Nation Media Group in Kenya. Mr
Kiboro said that Africa suffers from
under-development for many
reasons, but key amongst them is a
failure to attract sufficient
investment, both foreign and
domestic.
Mr Kiboro highlighted bad politics
and poor political leadership as the
main reasons why Africa gets only a
tiny amount of the investment
available globally. Mr Kiboro stated
that although authoritarian regimes
had been swept away in many
countries, this had not yet created
conditions for peace, order and
industry, which were critical for
successful private enterprise.
Furthermore, politics in many parts of
Africa, were still defined by tribe and
ethnicity, and the regular reshuffle of
senior civil servants resulted in no
institutional memory, and investors
were never sure whether the official
they negotiated with yesterday will
still be in office six months later.
Mr Kiboro concluded by saying that,
notwithstanding the difficulties of
doing business in Africa, many
corporations that have been
courageous enough to invest in
Africa have seen handsome returns
on their investment.
The Partners in Africa conference is
an annual event held in March/April.
The agenda and location for the 2007
conference is already being planned.
If you would like to be informed
about the 2007 conference when the
details are finalised, please email
Sonja Nel at PwC, Sunninghill on