Tax exemption for foreign employment income

On 01 March 2020, changes to the exemption for foreign employment income in s10(1)(o)(ii) of the Income Tax Act No 58 of 1962 (Act), will come into effect.

Until then, all foreign employment income earned by a South African tax resident will be exempt if the requirements of s10(1)(o)(ii) are met.

From 1 March 2020 onwards, only the first R1 million of such foreign employment income earned will be exempt in terms of s10(1)(o)(ii).

On 7 October 2016, SARS released a Frequently Asked Questions document dealing with amendments to s10(1)(o)(ii).

A draft Interpretation Note 16 (Issue 3) was also released.

From the Interpretation Note the key requirements to qualify for the exemption in s10(1)(o)(ii) are:

  • The taxpayer in question must be a South African tax resident;
  • The taxpayer must earn one of the forms of remuneration listed in the section;
  • There must be an employment relationship between the taxpayer and the person for whom or on whose behalf the services are rendered;
  • The remuneration must be received for services rendered; and The services must be rendered outside the Republic of South Africa, for at least 183 full days during any 12-month period and for a continuous period exceeding 60 full days during the same 12-month period.

Avoiding double taxation is dealt with in the documents and specifically where the portion of the foreign employment income above R1 million income is taxable in both South Africa and the foreign country. In that case, the taxpayer may claim a tax credit in terms of s6 of the Act, on the portion of the income that is taxable in both countries.

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