With the demand for skills opening borders, and South African companies expanding into overseas markets, many South Africans are taking the opportunity to work offshore. Payroll administrators are being asked to deal with the consequences of these moves. With the risk of falling foul of the legislation in this regard firmly on the employer’s shoulders, it would be wise to brush up on the requirements for earnings to be classified as tax-free.
The following requirements must be met:
- The employee must be able to prove an employment relationship (an employment contract would suffice). Independent contractors and self-employed people would not qualify for the tax-free exemption.
- The employee would need to be physically outside South Africa for more than 183 days within any 12-month period starting or ending during the tax year.
- The employee would need to be outside South Africa for a period of at least 60 consecutive days in the 12-month period mentioned above.
- It is important for employers to note that income for services rendered in South Africa must be taxed as normal. The fact that an employee qualifies to receive their foreign income tax-free does not mean that all income received in the tax year is tax-free.
- The biggest challenge facing employers is when to regard the income as tax-free. SARS places the onus on the employer to deduct the right amount of tax from an employee, so the employer has to be satisfied that all the necessary criteria have been met before they declare the income as tax-free.
- When the employee submits their annual tax return, SARS is bound to request that they upload the supporting documentation to prove the tax-free treatment of the applicable income. The employee will be best advised to upload the following information:
- A copy of the employment contract.
- A schedule of the days spent outside South Africa (agreeing to the stamps in the employee’s passport).
- A copy of the individual pages in the passport showing the exit and entry stamps.
- If the employee is subject to income tax on the tax-free foreign income, they will need to supply all the above listed information on assessment to get the tax refunded.