South African tax resident individuals are liable to income tax on their worldwide income. In other words, where a South African tax resident individual were to earn a salary for employment which may from time-to-time be exercised outside of the borders of the Republic, that income earned is still included in that South African tax resident individual’s gross income.
An exemption is available though to South African employees where the extent of the services rendered abroad are significant. The exemption is however limited to income earned in the form of remuneration from an employer and only to the extent that the remuneration received is for those services rendered abroad. In terms of the relevant provision, salaries earned in whatever form for services rendered outside of South Africa will be exempt from income tax in South Africa where the employee has been absent from the Republic for:
- At least 184 days during a 12-month period (in other words for more than 50% of a 1-year period); and
- More than 60 days of the above will have continuously been spent beyond South Africa’s borders.
As above, it is important to appreciate that it is not the entire salary earned by the employee for the year of assessment which will be exempt from South African income tax. The exemption is limited to only so much as relates to services rendered abroad. In other words, to the extent that the salary is earned for services that will be rendered in South Africa, that portion of a salary earned will still be taxable in South Africa.
The exemption is typically applicable to employees seconded for periods of time to render services abroad. It is quite likely that even though the income earned may be exempt from South African income tax, that the country in which the services are rendered will seek to levy tax on the employee’s income based thereon that the source of the income earned will be in that other country.
It is therefore possible for employees to benefit from the exemption on foreign earned salaries, whilst also paying very little income tax in the other country, if such a country is one with very low individual income tax rates (typically countries in the Middle East, such as Dubai). This incidence of “double non-taxation” has recently drawn the attention of National Treasury, and the Minister of Finance warned in this year’s Budget Speech that South Africa is considering rescinding the exemption if the other country in which the employment services are rendered does not seek to significantly tax the income earned by the employee.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
 Section 10(1)(o)(ii) of the Income Tax Act, 58 of 1962