South Africa levies taxation on its residents on a worldwide basis, meaning that all forms of income are taxed despite their location. Furthermore, most foreign countries levy taxation on a source basis for non-residents. In other words, where income is earned in a foreign country which has its originating cause therein, such as the provision of services, the foreign country usually reserves the right to tax that income.
In certain instances, employees may be required to work abroad for prolonged periods of time. This then raises concerns regarding the possibility of double taxation, as South Africa would attempt to tax its resident’s income on a worldwide basis while the foreign country would also attempt to tax the income on a source basis.
Fortunately, South Africa has concluded double taxation agreements with a large number of countries. Generally, in these instances, the taxing rights of the foreign jurisdiction are restricted where various conditions are met being that:
- The employee spends less than 183 days in that jurisdiction;
- The remuneration is paid by, or on behalf of, an employer who is not a resident of the foreign jurisdiction; and
- The remuneration is not borne by a permanent establishment which the employer has in the foreign jurisdiction.
However, the above provision may not always be available. For example, South Africa may not have a double taxation agreement in force with certain countries. In these scenarios, the South African resident may, subject to specific requirements, claim a tax credit for the amount of foreign tax paid, thereby reducing the tax payable in South Africa. Additionally, the employee may spend more than 183 days in a foreign jurisdiction. In this instance, a foreign employment income exemption may be applicable to reduce double taxation.
Should you render employment services abroad and have any uncertainty about your taxes, we suggest you contact your tax advisor for guidance.