Tax authorities set their sights on remote workers and wealthy individuals

Digital nomads and high-net-worth individuals with investments in different tax jurisdictions should expect increasing scrutiny from tax authorities, according to Professor Jennifer Roeleveld, international taxation expert and President of the International Fiscal Association (IFA) South Africa.

According to Roeleveld, countries worldwide are witnessing the erosion of their tax bases due to the global transition to a digital-first economy. “Tax authorities are therefore intensifying their focus on establishing the nexus between an individual or entity and their jurisdiction, giving them the right to tax.”

She says the work-from-anywhere trend advanced by the COVID-19 pandemic in 2020 has led to many countries introducing digital nomad visas, enabling employees to conduct business in other countries without registering for tax. South Africa is no exception, having introduced a remote work visa in May this year.

However, says Roeleveld, the move to remote work has created loopholes and triggered unprecedented tax compliance complexities for employers, employees, and tax authorities.

The challenge of taxing income earners who move between tax jurisdictions and high-net-worth individuals with investments in different countries is therefore high on the agenda for the world’s leading tax experts, who will convene in Cape Town at the end of October 2024 for the 76th Congress of the International Fiscal Association (IFA).

A session dedicated to challenges in the international tax arena affecting the taxation of wealthy and mobile individuals will update tax experts on trends and highlight the practical difficulties of taxing these individuals with the aim of finding fair solutions.

Roeleveld says that given the importance of developments in the international tax arena for African countries, it is fitting that the IFA is holding its annual congress on African soil for the first time. More than 1300 tax experts from around the world will share insights on the changing global fiscal environment and debate solutions.

Joint research by the International Finance Corporation and Google, published in 2020, estimates that Africa’s digital economy will likely grow to US$180 billion by 2025, accounting for 5.2% of the continent’s gross domestic product (GDP). Roeleveld says this growth potential incentivises African countries, including South Africa, to amend tax regimes to claim their share of taxes.

“African countries are also grappling with an influx of highly digitalised multinational shopping platforms and service providers that do not set up a physical presence, thereby avoiding taxes,” explains Roeleveld.

“Current income tax regimes were not structured for a digital global economy, and tax authorities are therefore struggling to apply tax at source of income effectively,” she adds.

Frustrated with their income tax regimes unable to provide for effective taxation at source of income for a digital economy, the African Tax Administrators Forum (ATAF) has designed a first-of-its-kind model digital service tax. More than 20 African countries have already introduced some form of regulation to tax the digital economy.

The congress will, therefore, also look at international nexus rules and the tensions between different approaches to source taxation of business activity.