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Tax exemption on foreign employment income

25 June 2014   (0 Comments)
Posted by: Author: Ruaan van Eden
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Author: Ruaan van Eeden

A thing that all employees might be well aware of is that at the end of every month, they don’t receive the gross amount of their remuneration, but rather a reduced amount which was derived by deducting employees’ tax, skills development levies and unemployment insurance contributions from the gross amount of the remuneration. There are, however, special concessions in which the employer would not be required to reduce the employees’ gross salaries with employees tax and where the salary may be totally exempt from Income Tax.

One such concession would apply where remuneration is paid to an employee that is a resident for tax purposes for services rendered outside of South Africa, where the employee was physically absent from South Africa for certain periods. The general rule is that income earned by a tax resident of South Africa from the rendering of services anywhere in the world will be included in his/her gross income. This means that the amount may be potentially subject to income tax if a special concession like an exemption does not apply thereto and if the employee does not have a numerous deductions to reduce his/her income that will be subject to Income Tax. However, notwithstanding this general rule, the special exemption for services rendered outside of South Africa may apply to the salary paid to the individual which would cause the salary to be free from Income Tax.

This exemption will apply for services rendered outside South Africa for or on behalf of any employer, as long as the individual is outside South Africa for a period or periods exceeding 183 full days (calendar, not working days) in aggregate, during any twelve month period commencing or ending during a tax year. In addition, the exemption will only apply if, during the 183 day period, there was at least a 60 day continuous period of absence from South Africa.

The taxpayer must be able to prove his absence from South Africa as per the periods above, as well as the fact that such absence was attributable to him rendering services outside of South Africa. But what about periods spent voluntarily abroad, even where the individual was in full employment? A situation that often arises is where employees render services on a rotation cycle, for example two weeks offshore and two weeks onshore having regard to the specific type of industry the employer operates in. The employer may require, due to health and safety concerns, that employees take time off (outside of normal leave days), which the employees may decide to spend offshore rather than returning to South Africa. In spending the voluntary days offshore, the employee may ensure that the 60 day continuous period for purposes of the exemption is met.

It is SARS practice to treat weekends, public holidays, vacation and sick leave spent outside the Republic as part of the days during which the services were rendered during the 183 day or 60 day continuous periods of absence. Should this practice be correct, it should be irrelevant as to whether an affected individual decides to spend a voluntary period abroad and, in so doing, complies with the requirements of the exemption. Any rest period (whether voluntary or compulsory) will be deemed to be included in the calculation of the 183 day or 60 day continuous periods for purposes of the exemption.

Taxpayers making use of this exemption are reminded to exercise caution in ensuring that all requirements are met and possible future changes are taken cognisance of. Should you be an employee who may potentially qualify for this exemption then it is advised that you consult with your SAIT tax professional in this regard to ensure that you receive your salary tax-free without any hassles.


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