Mining houses need to be aware of tax legislation and compliance requirements to ensure that they are protected, and the most effective and efficient way of doing so is to use tax advisory specialists who are aware of any potential pitfalls in legislative requirements, particularly when procuring cross-border skilled workers.

Independent tax firm Tax Consulting South Africa understands the challenges of working in Africa and the reasons executives or contractors accept mining positions in Africa.

The success of the firm is dependent on its delivering and aligning the client’s financial outcomes with their personal objectives, which must be both tax efficient and compliant to ensure sustainability, says Tax Consulting South Africa tax and compliance legal manager Jashwin Baijoo.

He adds that a significant challenge faced by mining houses in Africa, from a compliance perspective, is the procurement of critically skilled individuals, including their mobility in and out of African countries, in line with the relevant domestic requirements, as well as taking their home country planning into account.

In an example of South African contractors working in other African countries, Baijoo explains that South Africans must be compliant with both the laws of the country where they are based, but also with South African law.

Challenges which need to be planned for include a further submission or waiver being provided by the mining house on behalf of the mineworker for specific visas or work permit applications and where contractor’s international rotational schedule does not allow the R1.25-million yearly expatriate exclusion.

Contractor status does not allow any South African tax exemption and full South African tax law applies, while site accommodation and home leave trips are fully taxed except where a special dispensation is secured, which must be taken into account. Lastly, contractors must take note of tax credits which are not optimally applied for South African tax purposes.

For executives, there is often the need for more specialised solutions, which must be tailored for their own unique circumstances, he adds.

Rotations and In-Country Compliance

A further challenge faced by mining houses is the tax treatment of fringe benefits such as employer-provided accommodation and home flights for their South African employees.

Baijoo explains that the tax treatment of ‘home flights’ can be challenging, with the South African Revenue Service (Sars) occasionally arguing that the legislative definition of ‘home’ can be construed in numerous ways, including the employer-provided accommodation, situated on, or near, the mine site.

On the other hand, the tax treatment of the employer-provided accommodation for expatriate employees is also important to analyse, he notes.

From a South African or Sars perspective, this can end up as high as 19% of the expatriate mine worker’s yearly contributed tax capital.

This figure is “grossly disproportionate in most instances” because mineworkers often live in remote locations, with no amenities, in either tents, prefabs or other temporary structures, says Baijoo.

However, this can be remedied by means of a Directive being procured from Sars, and Baijoo notes that procuring a favourable directive can be difficult and should be handled with the utmost degree of diplomacy by a specialised tax attorney.

Planning is Key

Another tax legislation mining companies employing South Africans need to take note of is the Foreign Employment Exemption, Section 10(1)(o)(ii), whereby a tax resident of South Africa may claim an exemption for up to R1.250-million of foreign employment income in a tax year.

The requirements for this exemption are that the employee must spend workdays abroad, for more than 183 full days in a 12-month period, of which more than 60 full days must be continuous. However, this exemption does not automatically apply, and Sars will reject a claim for the exemption where the minimum-evidence requirements are not met.

Baijoo explains that this exemption “is now actively audited by Sars and we see many normal tax practitioners getting this tax claim wrong”.

Tax Consulting South Africa often works with accountants and tax practitioners who require their international tax expertise and assistance with this exemption. In this aspect, legal accuracy as well as consistency in how tax returns are submitted is important.

Where to Start?

Baijoo explains that when looking at the movement of employees from South Africa to site, mining houses should consider the structure of their expatriate employees’ salaries, given the tax implications in the country of the mining site and South Africa.

For the employees themselves, the best place to start is with a tax diagnostic.

“To protect the mining house and its mineworkers from noncompliance-related complexities arising with the respective revenue authorities, it remains the best strategy to be proactive and that you always ensure compliance,” he concludes.