Tax Consequences for South Africa Resident Working Overseas
02 August 2016
Posted by: Author: Xolani Jadezweni
Author: Xolani Jadezweni (BDO South Africa)
Tax payable by South Africans working abroad is impacted by whether they will remain tax resident of South Africa. A natural person is a "resident” if he or she is either ordinary resident in the Republic or meets the physical presence test. South African tax residents are taxed on worldwide income in South Africa. A non-resident is subject to tax in South Africa on income from a South African source.
A number of exemptions and deductions may apply to income earned whilst outside South Africa. This article focuses on the exemption relating to foreign employment income (section 10(1)(o)(ii) of the Income Tax Act) earned outside of South Africa. This exemption applies to services rendered outside South Africa for or on behalf of an employer, for an individual who is outside of South Africa for a period / s periods exceeding 183 days (calendar days) in aggregate, during any 12 month period starting or ending during a tax year. The exemption only applies if the 183-day period includes a 60-day continuous period of absence from South Africa.
SARS recently issued Draft Interpretation Note 16 (Issue 2) (DIN16) for comment. When compared with the current version of Interpretation Note 16 (IN16), the DIN16 contains a shift in certain aspects of the tax exemption on foreign employment income. In calculating the 183/60 day periods, the DIN16 applies SARS’ previous practice (IN16) and takes into account weekends, public holidays, annual leave days, sick leave days and rest periods spent outside South Africa to determine the exemption. IN16 contains practical examples of the "183/60 day approach” and, based on practice, the determination of the exemption is relatively straightforward. A number of relatively complex issues may arise and employers need to evaluate the impact on its employees that render services offshore. DIN16 highlights that a "common misconception is that all remuneration received or accrued during the qualifying 12 month period of 12 months is exempt” and that only "the remuneration received or accrued in respect of services rendered outside the Republic during the qualifying period of 12 months is exempt”. SARS’ view is derived from the wording itself.
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This article first appeared on bdo.co.za.