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Uncertainty mars foreign income

01 June 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (IOL)

The wording of a draft interpretation note on the tax exemption enjoyed by South Africans earning foreign income appears to have increased uncertainty rather than offering clarity.

There are concerns that the South African Revenue Service (SARS) wants to tighten the qualifying requirements for exemption, without changing the wording of the Income Tax Act.

Cliffe Dekker Hofmeyr tax director Ruaan van Eeden says individuals (and their employers) who are working outside South Africa need to be aware of the "contemplated approach” in the recently published interpretation note.

In the draft note, SARS states there is a "common misconception” that all remuneration received during a period of 12 months is exempt from income tax in South Africa.

It now appears to seek to introduce a second step in determining the actual remuneration which will be exempt from normal tax.

Currently South Africans do not pay any tax in South Africa if they are out of the country for a certain period.

In terms of the Act, they have to be outside the country for more than 183 days in any 12 months. The individual must also have been outside the country for 60 continuous days in the same 12 months.

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Van Eeden says the first test will be to apply these 183/60 full days rule, but as a second test an apportionment methodology must also be applied. This methodology excludes any day which is not regarded as a work day.

Piet Nel, head of tax technical at the South African Institute of Tax Professionals (SAIT), says SARS’ interpretation is that apportionment must be done in all instances where the person was not outside the country for a full year of assessment.

"My interpretation of the act is that it is only required when the individual concerned was outside the country for more than one year of assessment.

Nel explains, if someone was in South Africa for six months of the 12 months, and the rest outside, an apportionment must be done.

If the 183 and 60 full days and the period of employment falls in a year of assessment, no apportionment is required. In other words, if the person was not doing any work in SA in the tax year then no apportionment needs to be done.

"We submit that the Act does not require an apportionment to be done where the services were rendered in the year of assessment,” says Nel.

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In the draft note, SARS says remuneration received for work done in SA – during the 12 month period – remains subject to tax in South Africa.

"Once a person has met the 183/60 days test... the portion of the remuneration the portion that qualifies for the exemption must be calculated.”

Nel adds SAIT is concerned about the statement that only days of actual service are to be taken into account to determine the exempt portion. There is international precedent for this view, but the use of work days may not be beneficial to all employees.

Nel says if an individual cannot work on a particular day because of the weather, then it cannot be said that he did not render services.

It appears that work days (in terms of the apportionment method) will not include weekends, public holidays or leave days.

However, in terms of the 183/60 day test weekends, public holidays, leave days and sick leave days are taken into account.

Van Eeden says it is unclear whether compulsory rest periods spent in South Africa will affect the "work day” method in the apportionment process.

He says clarity is needed by way of practical examples in the final draft interpretation note.

SAIT also addresses the issue of directors who are also employees, but do not qualify for the exemption. SARS’ interpretation is that directors are holders of an office and are not eligible for the exemption.

Nel says he agrees that a person who only derives income in the form of directors fees does not qualify. "I believe that a director who is also an employee must qualify for the exemption.”

In terms of the act independent contractors also do not qualify for the tax exemption on foreign income.

SAIT CEO Keith Engel says National Treasury should amend the legislation. "They are offering services which are no different from the services offered by an employee.”

This article first appeared on


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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