Residence Based Taxation and Foreign Employment

South African residents account for tax on their worldwide receipts and accruals if they are tax resident based on being ‘ordinarily resident’ or through the physical presence test. A tax resident’s income is taxed in South Africa, regardless of the source of the income. There are, however, several exemptions. 

‘Ordinarily resident’ generally means the place where a person has his/her place of permanent residence. If a person is outside the Republic and intends to return to the Republic to keep his/her permanent home, such a person is regarded as a resident. 

Some of the criteria that are used to establish the country in which someone is ‘ordinarily resident’ are:

1.	the place of his/her most fixed and settled place of residence;
2.	the place of business and personal interests;
3.	the location of personal belongings, or
4.	whether an application has been made for permanent residency else-were. (If a person has formally emigrated from South Africa, he/she has decided to make another country his/her real home and, therefore, he/she will cease to be a tax resident in South Africa.) 

The physical presence test requires that an individual be present in South Africa: 

a.	for more than 91 days in aggregate during the relevant year of assessment; and
b.	for more than 91 days in aggregate in each of the preceding 5 years of assessment, and 
c.	for more than 915 days in aggregate in the preceding 5 years of assessment.
But not: 

1.	if the individual was outside the Republic for a continuous period of 330 days after ceasing to be physically present in South Africa (then the individual will no longer be a resident from the start of the 330-day Period). 

A person other than a natural person is defined as a resident if it is:

a.	incorporated in the Republic; 
b.	established or formed in the Republic; or 
c.	has its place of effective management in the Republic.

Foreign income is converted into South African Rand by applying the spot rate on the date on which the amount was received or accrued. 

A natural person or a trust may elect that all amounts be translated to South African Rand by applying the average exchange rate for the year of assessment. 

The tax implication of ceasing to be a South African tax resident is that the taxpayer is deemed to have disposed of all capital assets other than immovable property in the Republic or assets attributable to a permanent establishment of the Republic. Non-residents are taxable on income from a source within the Republic. Also, applicable withholding taxes would apply.

Foreign employment - Section (s10(1)(o) of the Income Tax Act)

Employees who are residents of the Republic are exempt from tax on remuneration earned from services rendered outside of the Republic (from employment), where:
1.	the employee was outside the Republic for more than 183 full days (117 full days during any period of 12 months in respect of any year of assessment ending on or after 29 February 2020 but on or before 28 February 2021) in aggregate, and 
2.	the employee was outside the Republic for a continuous period of at least 60 full days during any 12-month period. 

From 1 March 2020, the exemption will only apply if the employee’s remuneration for services rendered outside South Africa does not exceed R1 250 000 in respect of a year of assessment.

Therefore, foreign employment income in excess of R1 250 000 will be taxed in accordance with the normal tax tables applicable to individuals.

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