Tax Frequently Asked Questions
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FAQs Foreign Employment Income Exemption
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Section 10(1)(o)(ii) Requirements
What are the qualifying periods (that is, the “days test”) that need to be met for purposes of section 10(1)(o)(ii)?
An employee who is a tax resident in South Africa must be outside South Africa for a period or periods exceeding 183 full days (in aggregate) during any 12-month period, and a continuous period exceeding 60 full days during that 12-month period.
Does any of the requirements that applied before 1 March 2020 change going forward?
No, the requirements to qualify for the exemption remain the same. The only change that is effective from 1 March 2020 is that the exemption is now limited to a maximum of R1,25 million.
What does the foreign employment income exemption mean?
Section 10(1)(o)(ii) provides for an exemption for foreign employment income received for services rendered outside South Africa, provided the requirements are met. Before 1 March 2020, if the requirements regarding the exemption are met, all remuneration for services rendered outside South Africa is exempt. From 1 March 2020, if the requirements are met, the exemption is limited to R1,25 million. Any remuneration received in excess of R1,25 million will be subject to normal tax in South Africa, irrespective of whether tax is paid in another country.
What type of income qualifies for the exemption under section 10(1)(o)(ii)?
The following amounts fall within the scope of the exemption:
• Salary
• Taxable benefits
• Leave pay
• Wage
• Overtime pay
• Bonus
• Gratuity
• Commission
• Fee
• Emolument
• Allowance (including travel allowances, advances and reimbursements)
• Amounts derived from broad-based employee share plans
• Amounts received in respect of a share vesting
Who is excluded from the application of section 10(1)(o)(ii)?
The following categories of individuals are excluded from the exemption:
• A public office holder appointed or deemed to be appointed under an Act of Parliament
• Employees who are employed in the national, provincial or local sphere of government, certain constitutional institutions, national and provincial public entities and municipal entities
• Independent contractors and individuals who are self-employed also do not qualify for the exemption as such persons are not in an employment relationship
Tax Residence and Compliance
If I qualify for the exemption, do I have to submit an income tax return in South Africa?
Yes, the Public Notice issued under section 25 of the Tax Administration Act, 2011 read with section 66 of the Act specifically provides that an individual working outside South Africa is required to submit an income tax return.
Must I notify SARS if I cease to be a tax resident in South Africa?
Yes.
What are the tax implications if I cease to be a tax resident in South Africa?
A deemed disposal for capital gains tax purposes takes place at the time when an individual ceases to be a tax resident. The individual will be deemed to have disposed of his or her worldwide assets, excluding immovable property situated in South Africa.
How does “financial emigration” impact my tax residence?
The term “financial emigration” has been used in the public at large with reference to the process of acquiring approval from the South African Reserve Bank to emigrate from South Africa for exchange control purposes. Emigration is not connected to an individual’s tax residence. It is merely one factor that may be taken into account to determine whether an individual broke his or her tax residence. An individual’s tax residence is not automatically broken when he or she emigrates for exchange control purposes. The deciding factor remains whether an individual ceased to be ordinarily resident in the Republic.
Is tax residency based on citizenship?
No, citizenship is one of the indicators that may point to someone being ordinarily resident, but that is not conclusive. Various factors may play a role and must be taken into account to determine whether a person is ordinarily resident in South Africa.
Double Tax Situation
Will the change to section 10(1)(o)(ii) result in a double tax scenario?
If an individual earns employment income in excess of R1,25 million and there is no tax treaty or the tax treaty between South Africa and the foreign country does not provide a sole taxing right to one country, both countries will have a right to tax the income. The portion of the income in excess of R1,25 million may end up being subject to double tax. Generally, under the provisions of the relevant tax treaty, if an employee renders services in a foreign country exceeding 183 days, both countries enjoy the right to tax the income. The country of source enjoys the first right to tax the employment income and the country of residence, in our case South Africa, will provide double tax relief in the form of a foreign tax credit to the extent that double tax arises, subject to limitations.
Is the exemption under section 10(1)(o)(ii) dependent on the provisions of a tax treaty?
No, the R1,25 million is exempt under domestic law and not under a tax treaty. The exemption is therefore not dependent on the application of a tax treaty and applies irrespective of whether there is a tax treaty or not.
Information as supplied by the SOUTH AFRICAN REVENUE SERVICE
Date of 1st issue : 7 October 2019
Date of 2nd issue : 22 October 2019
Date of 3rd issue : 17 March 2020
The original documents can be found on the SARS website at the following locations.