South Africa follows a worldwide basis of taxation, meaning that South African tax residents are subject to tax on their worldwide income. This principle is subject to certain exemptions or exclusions, particularly the foreign employment income exemption. Although the exemption was introduced to prevent double taxation, it also led to double non-taxation. As a result, in respect of years of assessment commencing on or after 1 March 2020, the exemption was amended to be limited to R1,25 million. Any foreign employment in excess of R1,25 million will be subject to normal tax in South Africa.
To qualify for the exemption, a taxpayer must be a South African tax resident who earns certain types of remuneration from employment rendered outside South Africa, and certain qualifying periods must be complied with. In summary:
- Remuneration that qualifies is amounts received by an employee by way of salary, leave pay, wages, overtime pay, bonuses, gratuities, commission, fees, emoluments, or allowances for services rendered.
- The exemption only applies where there is an employment relationship. In other words, the taxpayer must render the services under an employment contract and on behalf of any employer.
- The taxpayer must receive the remuneration in respect of services that they must render outside South Africa.
- The taxpayer must be employed outside South Africa for at least 183 full days during any 12-month period, noting that the 183 full days refer to calendar days and need not be consecutive. This test relates to a person’s employment, and days spent outside South Africa when a person is not employed do not qualify as days for the 183 days test.
- Furthermore, the taxpayer must render services outside South Africa for a continuous period exceeding 60 full days in the same period of 12 months. Taxpayers must be able to substantiate these periods and may be requested to provide documentation when claiming the exemption, which may include passports, travel schedules and employment contracts.
Foreign employment is no longer fully exempt, with a limitation of R1,25 million per year of assessment. This does not mean all income below the R1,25 million threshold is exempt. The exemption applies only to remuneration received in respect of services rendered outside South Africa during the qualifying period. An apportionment may be applicable if income relates to services rendered both in and outside South Africa. Where services are only incidentally provided in South Africa, the originating cause of the employment will be outside South Africa, and no apportionment will be necessary.
Although the requirements may appear simple, each involves a detailed and complex analysis based on each taxpayer’s facts. We recommend approaching your tax advisor before filing the relevant income tax return if you receive foreign employment income.