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Working Overseas - Some Tax Relief

01 May 2006   (0 Comments)
Posted by: Author: Mark Korten
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Working Overseas - Some Tax Relief

South Africa has,in line with international best practice with regards to remuneration derived from service rendered outside South Africa by a south African tax resident,enacted legislation to exempt remuneration earned outside South Africa from income tax.The general exemption is found in section 10(1)(o))(ii)  to the Income Tax Act.

First we must consider "services rendered outside South Africa”.This literally means services physically rendered outside of the borders of South Africa, including its territorial waters.The basis of the tax exemption is that if a South African resident is employed and as such is outside of the Republic for periods exceeding 183 days in aggregate (of which includes a continuous period of more than 60 days) during a year of assessment, to render services for or on behalf of an employer, the remuneration derived therefrom will be exempt from income tax in South Africa.  

The exemption in this case does not apply to self-employed persons – in order to enjoy the exemption a person must be employed by someone else, even if the employer is a South African resident.A person qualifies for tax exemption if he has complied with the period of 184 days (including over 60 continuous days) absence from South Africa.The employer is required to deduct PAYE if the remuneration that it pays it is not subject to tax exemption. 

The potential for exemption, however, does not waive liability of an employer to deduct PAYE.An employer has a discretion not to deduct employee’s tax if its employee does qualify for tax exemption. The employer, however, would then be liable for employee’s tax, interest and a 10 % penalty if it is afterwards found that the exemption was not applicable.

The employer has a right of recourse to claim from the employee the PAYE previously not deducted as well as interest due to SARS, but cannot claim from the employee the 10 % penalty that the employer incurred for failing to withhold PAYE.  

With extensive experience in international taxation issues, KHFG can assist employers and employees alike to structure remuneration received by virtue of services rendered outside the borders of South Africa in a legitimate and tax efficient manner, as well as advising on the exchange control implications arising there from.

Source: By Mark Korten (TaxTALK)


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