Many South African tax residents earn foreign employment income. This income is currently not taxed in South Africa if:
- the person was abroad for that employment for more than 183 full days during any 12 month period,
- the 12 month period includes a continuous period abroad exceeding 60 full days,
- the income constitutes any remuneration received by way of salary, bonus, commission, etc. (including fringe benefits and allowances) for services rendered for or on behalf of any employer, and
- the services were physically rendered outside the Republic of South Africa by the South African tax resident.
- (It is important to note that this exemption may only be claimed by private sector employees, and not independent contractors or government employees.)
After much public debate, the legislation regarding the exemption of tax on foreign employment income earned by South Africans has been amended and will come into effect on 1 March 2020. The “Expat Exemption”, section 10(1)(o)(ii) of the Income Tax Act, will now only exempt the first R1 million of such foreign employment income earned by residents per tax year.
Any income tax paid on the foreign employment income in the foreign host country may be claimed in the taxpayer’s income tax return against the resulting tax liability in South Africa by way of section 6quat. However, this claim will be limited to the amount of South African tax payable on the foreign income.
South African tax residents working abroad and receiving income as described in this section will have to ensure that their tax affairs are in order by 1 March 2020 to comply with this amended legislation. This might include a review of tax planning and administration, as it might result in the taxpayer now having to submit and pay provisional tax in South Africa every six months, as well as having to submit annual income tax returns. Affected residents might also want to reconsider their contracts for foreign employment. In some cases it might be necessary to consider the provisions of the Double Tax Agreement between South Africa and the foreign host country. There has also been much talk about possible mass emigration by South African residents as a result of this amended legislation, however each case should be considered individually.
It is vital that taxpayers collect and retain all necessary documentation and information, such as proof of foreign taxes already paid, in order to properly discharge any burden of proof required by SARS.
Lobbying groups are still petitioning National Treasury for further relief, with submissions made for instance on the exclusion of fringe benefits and allowances in the R1 million threshold. Treasury indicated that a Special Workshop will be held during 2019 to investigate these submissions.
We will, as always, keep you updated on any further developments in this regards.