Tax exemption on foreign employment income
17 October 2014
Posted by: Authors: Ruaan van Eeden and Gigi Nyanin
Authors: Ruaan van Eeden and Gigi Nyanin (DLA Cliffe Dekker Hofmeyr)
discussion of foreign employment as a special concession where the employees
salary may be entirely exempt from income tax.
A thing that all employees are 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.
This article first appeared on the September/October edition on Tax Talk.