Tax Exemption on Foreign Earnings

Posted by Nico Viljoen on 29 November 2017.



Nico Viljoen

MBA, Hons BCompt, HDip Tax (Jefferson School of Law USA), HED, AGA(SA) DBA Graduate Student, Business School Netherlands

The Tax Shop Head Office

More about Nico Viljoen

Nico obtained qualifications from various academic institutions and currently studies towards the DBA at the Business School Netherlands. He is an associate member of the South African Institute of Chartered Accountants. After completion of his articles with PWC, he lectured in the fields of taxation, accounting and auditing at the Vaal University of Technology. Thereafter, he occupied financial executive positions in the heavy engineering, chemical, transport and automotive industry. Nico has owned and managed various successful businesses over the 20 years. Nico has been a business mentor for various organisation and serves as an external moderator for taxation and internal auditing.
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The main change is that “the first R1 million of foreign remuneration to be exempt from tax in South Africa if the individual is outside of the Republic for more than 183 days as well as for a continuous period of longer than 60 days during a 12-month period. The exemption threshold should reduce the impact of the amendment for lower to middle class South African tax residents who are earning remuneration abroad. The effect of the exemption will also be that South African tax residents in high income tax countries are unlikely to be required to pay any additional top up payments to SARS.”  The proposed implementation date has been moved to 01 March 2020, so there are many opportunities for tax planning hereon.
The announcement by National Treasury to increase the threshold on taxable income earned abroad will reduce the impact for lower to middle class South African tax residents who are earning remuneration abroad.  The effect of the exemption will also be that South African tax residents in high income tax countries are unlikely to be required to pay any additional top up payments to SARS.
Currently, remuneration accruing to an employee while working abroad is exempt from tax in South Africa, if the employee is abroad for more than 183 days and 60 continuous days during a 12-month period. In the 2017 Budget Speech, it was announced that this exemption will apply only if the remuneration is subject to tax in a foreign jurisdiction.
However, in the draft Taxation Laws Amendment Bill (TLAB) published in 19 July 2017, National Treasury went further and proposed that the exemption be removed in its entirety with effect from 1 March 2019 regardless of whether the remuneration was subject to foreign tax. Accordingly, it was suggested in the TLAB that tax will be imposed on remuneration paid to employees while working abroad, irrespective of how long the employee works in the foreign jurisdiction.
Following the public comments on the draft TLAB 2017, and because the proposal will severely negatively impact on finances, and remittances to South Africa, especially for those on relatively lower incomes, the National Treasury announced on 14 September 2017 that the proposal will be changed to allow the first R1 million of foreign remuneration to be exempt from tax in South Africa if the individual is outside of South Africa for more than 183 days as well as for a continuous period of longer than 60 days during a 12 month period.
The vast majority of South Africa’s tax treaties, if not all of them, respect South Africa’s right to tax the employee’s foreign remuneration, subject to the employee being allowed to claim any foreign tax as a credit against the South African tax.  Individuals working in foreign countries will also have more time to either adjust their contracts or their circumstances and to finalise or formalise their tax status as the effective date of the proposal was extended to 1 March 2020.