Foreign Employment Income Exemption – Effective 1 March 2020. Will this impact you?

by Madeleen van Schalkwyk | October 5, 2021

Any South African (“SA”) tax resident earning foreign employment income will be impacted by this tax amendment as of 1 March 2020.

This will mean that all world-wide income still needs to be declared on your SA tax return, but now only the first R1,000,000.00 (one million Rand) will be exempt from income tax.

We all know someone working overseas or earning foreign income. You might think that they don’t have to submit tax returns and earn tax exempt income – lucky them!

Not so fast, they might have to pay tax in SA, convert those Dollars into Rands and pay tax on the Rand amount – Wow!

Without being too technical, this is just a broad overview and each taxpayer who might be impacted by this will have to consult a tax professional to review their tax status and situation.

The following criteria will have an impact:

  • Do you earn foreign employment income?
  • Do you render employment services outside of SA?
  • Are you a SA tax resident? The physical presence test or ordinarily resident test will have to apply. The onus will be on the taxpayer to prove to SARS what their intention is regarding where they are a tax resident.

Let me break down the resident tests:

Ordinarily residence test: The Act does not define the term “ordinarily resident”. The courts have, however, considered its meaning and have established principles to be applied in determining the place in which a natural person is ordinarily resident.

Physical presence test: These requirements are that the person must be physically present in SA for a period or periods exceeding –

  • 91 days in aggregate during the year of assessment under consideration;
  • 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
  • 915 days in aggregate during the five preceding years of assessment.

A natural person who complies with all the requirements referred to above is a resident of SA, for tax purposes, for the year under consideration.

A natural person, who is resident by virtue of the physical presence test ceases to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days. Residence will cease from the day that the person left SA.

In summary, if you are a non-SA Tax resident based on the tests mentioned above, and you earn foreign employment income, you might not be impacted by this tax amendment. You need to pay taxes on your employment income where you are a tax resident.

If you still have SA assets that earn income, you should still submit annual SA tax returns and pay any taxes thereon.

Let me explain this with two examples:

Tina works outside SA, she is a non-SA tax resident. Tina will only have to submit SA tax returns if she earns SA source income. This can be in the form of interest, rental income and any other income earned from a SA asset.

Brian works for an overseas company, but he is based in SA. He earns employment income and in that country’s currency. Brian is a SA tax resident based on the physical presence test. He will need to declare the employment income, converted in Rands, on his tax return. Only the first R1,000,000.00 (one million Rand) will be exempted, the rest will be taxed.

He might be able to deduct the taxation already paid on that employment income in the other country. This will depend on whether there is a double taxation agreement between that country and SA.

In my next article I will discuss the foreign investment and emigration tax clearance process.

If you or someone you know might be impacted by this, please contact us to review your tax status. This might look scary, but we can help you understand your unique situation.


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