Africa is predicted by the International Monetary Fund to have 6 of the world's top-10 fastest growing economies in 2014 (including DRC 10.5%, Mozambique 8.5%, Nigeria 7.4% and Mali 7.4%) and is increasingly being targeted by local and international companies for its investment potential, a modern day equivalent of the colonial ‘scramble for Africa’ in the making. South Africa (given its good infrastructure, relatively high living standards and first world financial institutions), represents a good base for multinational companies to move into the rest of Africa. The result is that South Africa is likely to see an upsurge in expatriate movement, something which won't have gone unnoticed by tax authorities, locally and abroad.

The global tax environment we find ourselves in is one in which tax revenues are down and tax authorities are under increasing pressure to increase the tax base. Fiscal authorities no longer act in isolation, but actively engage one another, a prime example being the reciprocal exchange of tax information agreement signed between South Africa and the US in June 2014. Local departments are also working together, for example tax departments are able to access immigration information obtained through electronic scanning of passports.

One area on which tax authorities are focusing more and more is the business traveler. Short term ("ST") assignments, in particular, are often neglected by Human Resource ("HR") departments within companies. Long term relocations are easier to monitor. Appropriate policies & systems are in place and HR or tax departments take care of the expatriates' tax and compliance. However ST travelers often 'fly under the radar'. Travel is often booked by secretaries and can be changed at a moment's notice. The number of days spent abroad is seldom accurately monitored, flights are changed, trips are cancelled and new ones made at short notice. All of this makes it increasingly difficult for HR, without dedicated internal resources or external advisors, to monitor staff movements accurately.

Increasing corporate expatriate movement, both long and ST, is creating a minefield for HR resources, with significant risks, including:

•     Corporate tax & non compliance: the presence of short term assignees creating a permanent establishment ("PE"), with the unsatisfactory outcome of all profits attributable to the business operations in the host country becoming subject to tax in that country;

•     Personal tax and non compliance (income tax and social security): repeated ST business trips inadvertently creating a tax liability for the employee in another region, not to mention penalties & interest (probably for the company’s account), together with possible criminal sanctions and obstacles to doing business in that country again;

•     Reputational risk: for example senior executives inadvertently not complying with tax obligations in the home or host country, resulting in the wrong type of headline for the company concerned.

In this increased risk environment, companies looking to expand into Africa need to ensure that adequate resources are dedicated to monitoring staff movement and planning relocations, including a thorough investigation of tax implications. Revenue authorities talk to one another and relief is not always available to expatriates through double taxation agreements, which, notably, South Africa does not have in place with a number of other African countries.

Africa represents an exciting prospect for investors but care must taken to avoid the pitfalls alluded to in this article. 

The tax department at Shepstone and Wylie is able to assist all companies with their expatriate and other tax needs. The author of this article was an expatriate himself, having lived and worked in the United Kingdom and Australia, advising multinational companies with employees located throughout the world.

Shane Price, Associate Partner

Contact: 031 575 7517 and sprice@wylie.co.za