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Amendment in respect of foreign employment income exemption

Tuesday, 07 November 2017   (0 Comments)
Posted by: Author: Nandipha Mzizi and Louis Botha
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Author: Nandipha Mzizi and Louis Botha, (cliffedekkerhofmeyr)

Alongside the 2017 Medium Term Budget Policy Statements, National Treasury released the revised version of the Taxation Laws Amendment Bill 27 of 2017 (Bill) on 25 October 2017. The Bill contains those proposals that were accepted by National Treasury and which were communicated to Parliament’s Standing Committee on Finance, during the report-back hearings.

Initially in the draft Taxation Laws Amendment Bill, 2017 (Draft Bill), the proposal was to repeal the exemption on foreign employment income in terms of s10(1)(o)(ii) of the Income Tax Act, No 58 of 1962 (Act). National Treasury (Treasury) thereafter engaged in an extensive consultation process on the proposed amendments with various stakeholders.

In terms of the Bill, the Act will be amended to allow the first R1 million of foreign remuneration in respect of a year of assessment to be exempt from tax in South Africa if the person is outside of South Africa for more than 183 days and for a continuous period of longer than 60 days during a 12 month period. In its Draft Response Document dated 14 September 2017, Treasury stated that:

The exemption threshold should reduce the impact of the amendment for lower to middle class South African tax residents who are earning remuneration abroad. The effect of the exemption will also be that South African tax residents in high income tax countries are unlikely to be required to pay any additional top up payments to SARS.

This was in response to comments that the tax will have a severely negative impact on finances and remittances to South Africa, especially for those on relatively lower incomes and that it would increase the cost of employment of South African tax residents who work abroad. Treasury stated that the introduction of the capped exemption should alleviate the increased taxation costs associated with employing South Africans abroad. One should note that the balance of the remuneration, being the amount in excess of R1 million, will be taxed in South Africa irrespective of the days spent outside of South Africa.

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