How can an Umbrella Company Help with Contracting in South Africa?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in South Africa. Even better, most are experts in South Africa and expat tax law, meaning they’ll also help you optimise your earnings in South Africa.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for South Africa.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in South Africa, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in South Africa and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in South Africa
One of the most consistently challenging aspects of contracting in South Africa is complying with the country’s tax system. As well as paying tax in South Africa, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in South Africa
If you’re working in South Africa under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in South Africa for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in South Africa, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in South Africa through PAYE is left with the prospect of doing everything themselves.
Do you know much about South African Tax Law? Does South Africa have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in South Africa can range from 18 to 45 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in South Africa
|When Do You Need to Lodge Your Tax Return?||Each year, SARS will notify individuals of the period in which tax returns can be filed. This usually runs between July and November each year.|
|Tax Filing Deadline||Usually the end of November.|
|Can you file it online?||Yes, you can file your tax return via e-filing here.|
How to File Taxes in South Africa as a Contractor
There are multiple ways to file your income tax in South Africa. This includes:
- E-filing on your computer
- Filing electronically at a SARS branch
- Requesting a return to be posted to you and completing your return manually and posting it to SARS.
The easiest way to file your tax is via the E-filing system. To use E-filing, the following steps should be followed:
Step 1: Register for a SARS e-filing account as an individual here(link is external). Have the following information at hand:
- Your tax registration number
- Your ID number
- Your general personal details.
Step 2: Login(link is external) using your username and password.
Step 3: On the left-side menu, click ‘returns issued’ and then click ‘personal income tax (ITR12)’.
Step 4: File form ITR12 by declaring any income that you have and any tax-deductible expenses that you have incurred over the tax year. When completing your return, have the following supporting documents at hand:
- Your IRP5/IT3(a) certificate(s) which you will receive from your employer
- Medical certificates and documents required for amounts claimed in addition to those covered by your medical aid.
- Pension and retirement annuity certificates
- Your banking details
- Travel logbook (if you receive a travel allowance)
- Tax certificates that you received in respect of investment income (IT3(b))
- Completed confirmation of diagnosis of disability (ITR-DD(link is external)), where applicable
- Information relating to capital gain transactions, if applicable
- Other documents relating to income you received or deductions you want to claim.
Step 5: After you have completed the form, review your information and click ‘File Return’.
Step 6: If you have any tax due, the deadline to pay is usually the end of March of the following year. The following methods may be used to pay your tax:
- Electronic payments (ETF)
- Payments at bank: ABSA, Albaraka Bank Limited, Bank of Athens, Capitec, FNB, Habib Bank Zurich (HBZ), HSBC, Nedbank, Mercantile or Standard Bank branch.
- SARS: https://www.sars.gov.za/Pages/default.aspx(link is external)
- Supporting forms for tax returns: https://www.sars.gov.za/Pages/Forms.aspx?pageid=C26(link is external)
Tax Figures in South Africa
|Currency||South African Rand (ZAR)|
|Tax-free Threshold in South Africa||None|
|Income Tax Rates||
The above progressive rates apply to both residents and non-residents.
Tax Residency in South Africa
When do you become a tax resident in South Africa
You become a tax resident in South Africa when:
You can become a resident for tax purposes under an ordinary residence rule or under a physical presence rule.
Under an ordinary residence rule, an individual is regarded as a resident if South Africa is the place, considering all financial and personal circumstances, to which the individual would return from their travels, and that is the individual’s real home.
Under the physical presence rule, if the individual is not an ordinary resident during a particular year, but they have been physically present in South Africa for more than 91 days in the tax year, and on aggregate more than 915 days in the 5 preceding tax years, they will be classified as a resident for tax purposes.
Does the 183 day rule apply in South Africa
Am I taxed on my global income in South Africa
Yes, if you are a resident.
Non-residents are subject to tax on income from a South African source only.
Can you set up your own Limited Company in South Africa?
|How long does it take to set up||45 days|
|How much does it cost||ZAR 175|
|Is it easy?||Starting a Business Rank: 136 (Source: World Bank)|
Tax Calculator in South Africa
If you are a contractor and want a calculation on your tax and net retention in South Africa, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in South Africa
Contractors in South Africa are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A South African umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in South African taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the South African tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in South Africa
We work with numerous umbrella companies in South Africa, many of whom are experts in tax and immigration laws. If you have any questions about tax in South Africa, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their South African work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in South Africa but without the overhead of directly dealing with the South African tax authorities. Get in touch with us today for some reliable advice on tax in South Africa!
A Contractor’s Guide to Work Permits in South Africa
Immigration is one of the primary concerns for any contractor hoping to start working in South Africa. Permanent employees will find it easy to get their South African work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The South African work permit, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in South Africa is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in South Africa (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in South Africa. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout South Africa and match contractors with the right company for them. If you’ve already secured a contract in South Africa, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).