South Africa has a residence-based tax system, which means residents are taxed on their worldwide income, regardless of where that income was earned.
South African tax residents living overseas and earning remuneration in respect of services rendered outside of South Africa are exempt from tax in South Africa, provided that the individual is outside of South Africa for a period or periods exceeding 183 full days (60 of which have to be continuous days of absence), during any 12 month period.
There is currently no limitation on the foreign employment income exemption.
From 1 March 2020, the first R1 million earned from foreign service income will be exempt from tax in South Africa, provided more than 183 days are spent outside SA in any 12-month period and, during the 183-day period, 60 days are continuously spent outside SA.
This means that any foreign service income above the first R1 million will be taxed in South Africa at the relevant tax resident’s marginal tax rate.
To prove to SARS that you comply with the section 10(1)(o)(ii) exemption, you need to keep a record of your employment contracts and proof of payment of taxes abroad.
When considering your approach to tax planning you should appoint a Tax Practitioner to ensure that you don’t step onto any landmines.
In order to ensure that the tax system promotes the principles of fairness, it was legislated that foreign employment income earned by a resident should no longer be fully exempt.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)