South Africans working abroad: The change in the Foreign Employment Income Exemption

Mike Abbott, Head of Wealth at Sable International.

Tips to ensure you protect your earnings and are compliant with the proposed exemption SARS tax rules.

South Africans working abroad will soon be taxed by SARS on their foreign earnings. Sable International’s Head of Wealth, Mike Abbott outlined the reason for the change and a few tips to ensure compliance:

The 2017 Budget Speech made some far-reaching changes to how South Africans abroad will be taxed. Whilst the initial proposal was to tax South Africans abroad benefitting from double non-taxation on their foreign earnings, the Taxation Laws Amendment Bill published last week proposes complete repeal of the foreign employment income exemption.

A number of South Africans working abroad may now find themselves subject to additional taxation. The historic position was that any employment income received or accrued during such absence from South Africa would be exempt from taxation in South Africa.*

In terms of the residence-based system of taxation, South African residents are taxed on their worldwide income. If a resident works in a foreign country for more than 183 days with no tax payable in the foreign country, that foreign employment income will benefit from double non-taxation.

*Section 10 of the Income Tax Act (ITA) exempts income for services rendered outside South Africa for periods exceeding 183 days in a 12-month period, of which at least 60 must be consecutive. This relates only to employment income and not other types of income such as rent, interest or investment income. It is also not available to self-employed persons or sub-contractors. 10(1)(o)(ii) of the Income Tax Act (ITA).

1. Determine whether the new provisions apply to you

Determine your residency for South African tax purposes. This will give you certainty in terms of your position and your available options. You would need to take into account your status as ‘ordinarily resident’ in SA, and if so, whether there is a relevant DTA and if you comply with the provisions of the DTA to escape the consequences of the proposed amendment.

2. Comply with SARS regulations

If you complied with the existing legislation or DTA, you will not have any issues with SARS. You should have filed your annual tax returns and declared your foreign exempt income. If you haven’t, this would need to be rectified.

3. Going forward

The proposed amendment is due to come in to force on 1 March 2019, so you have some time to ensure you can either be shown to be non-habitually resident, or, failing that, are able to be deemed non-resident by virtue of an applicable DTA’s provisions.

Lastly, If you choose to return to South Africa permanently at some point, you should ensure your affairs are structured in the most tax-efficient manner. This is something Sable can assist with”.