Remote workforce:Tax implications

Riana Esterhuyse - Since the first lockdown in March 2020 a lot of employers encouraged employees to work from home even after it was lifted.

A lot of employers realised that, for certain duties, it is not necessary for the employee to be at the workplace, but can be done remotely from home and even from a different country.

This opened opportunities for employers to employ non-resident employees and for Namibian residents to work for non-resident employers.

Working for a non-resident employer or employing a non-resident employee might have tax implications for both the employer and the employee. Below we outline some the tax implications on the employee and employer where the employer is a non-resident and the employee is a Namibian resident.

EMPLOYEE

One of the main matters to consider in evaluating your tax obligation in Namibia is the source of the income in question. Furthermore, you should also consider income which is deemed to be from a source within Namibia in terms of specific sections of the Income Tax Act, Act 24 of 1981.

Section 15(1)(e) of the Act should in this case be considered and if all the provisions of this section is met, the income earned from the services rendered by the Namibian resident will be deemed to be from a Namibian source as the services are rendered in Namibia irrespective if the payment is made by a Namibian resident or non-resident or where payment is to be made (for e.g. into a foreign bank account).

EMPLOYER

Section 2 of the second schedule of the Act determines that any employer who pays or becomes liable to pay any remuneration to any employee shall deduct or withhold employees tax or pay as you earn (PAYE).

The monthly payment to the Namibian resident employee for the services rendered in Namibia will fall in the definition of remuneration. The non-resident entity may well be considered an employer in Namibia and thus would have an obligation to withhold PAYE on the salaries paid. The non-resident entity would thus need to register for PAYE in Namibia.

This registration may be complicated as the default registration for any tax in Namibia would be the corporate income tax registration. A motivation on why no corporate income tax is due in Namibia would need to be given.

When companies are operating in Namibia with Namibian employees, it may further result in the foreign company being liable for income tax and VAT in Namibia.

The non-resident employer should also consider the requirements to register for social security at the social security commissioner and to register for vocational and educational training (VET) levy at the Namibian Training Authority (NTA). Both of these authorities also require monthly return submissions and payments.

Riana Esterhuyse is the tax associate director at PwC Namibia. Contact her at [email protected]