Employees Tax Withholding Obligations for Non Residents: Amendments and Practical Considerations

by Hylton Cameron

The obligation of non‑resident employers to withhold South African employees’ tax has historically been subject to differing interpretations, largely dependent on the specific facts and circumstances. Recent legislative amendments have clarified this position by providing that where a non‑resident has a permanent establishment (PE) in South Africa, commonly referred to as a branch, the non‑resident is required to withhold employees’ tax.

This amendment is particularly significant for non‑residents operating through South African PEs, as not all affected parties were, or remain, aware of the change. The lack of awareness has potential compliance implications, especially where payroll processes have not been aligned with the amended requirements.

In a related development, the 2025 OECD Update to the Model Tax Convention appears, in the authors’ view, to have increased the threshold for the creation of a PE in certain scenarios. As a result, the circumstances in which a PE is regarded as having been established may be more limited, which could in turn reduce the practical impact of the recent South African amendment.

The Budget documentation further highlighted that, as a consequence of the amendment, a non‑resident employer could theoretically have been required to withhold South African employees’ tax even where a South African resident employee was employed and rendered services entirely outside South Africa. It has now been announced that this position will be corrected, such that the withholding obligation will apply only where the employee effectively works at, or in connection with, the South African branch.

This clarification is both logical and welcome. In practice, it is doubtful whether many non‑resident employers were, in fact, withholding South African employees’ tax in respect of employees working exclusively in their home jurisdictions. Nonetheless, the amendment provides much‑needed certainty and aligns the withholding obligation more closely with commercial and operational reality.