A South African resident is generally taxed on their worldwide income.
There is however one important exemption. This is known as the ‘foreign employment exemption’. To qualify for such an exemption the requirements of Section 10(1)(o)(ii) of the Income Tax Act have to be met. This exemption is explained in detail in SARS Interpretation Note 16 (dated 27 March 2003).
In terms of this section, remuneration received or accrued to any person for services rendered outside of South Africa will be exempt under the following terms and conditions:
- The individual is in an employment relationship (with a signed employment contract).
- The exemption will not apply to self-employed persons or independent contractors.
- The remuneration must be for services provided outside South Africa.
- The services may be rendered on behalf of any employer. It is not restricted to a South African employer.
- The individual must render services outside South Africa for a period or periods exceeding 183 full days in any 12-month period commencing or ending during that year of assessment. It is important to note that the 183 days need not be consecutive.
- The individual must render services outside of South Africa for a continuous period of more than 60 full days (there must be at least one period of absence that exceeds 60 consecutive days).
- Weekends, public holidays, vacation and sick leave spent outside the Republic are considered to be part of the days during which services were rendered during the 183 day and 60 day periods of absence.
- The 12 month period referred to is not aligned to the South African tax year, but must include consecutive calendar months. At least one calendar month must fall within the tax year during which the exemption is sought.
- Although such income may qualify for the foreign employment exemption, the income must still be disclosed on the taxpayer’s annual Income Tax return (in the tax-free field listed as ‘Section 10(1)(o)(ii)’).
It is advisable for the taxpayer to retain the following details as audit proof as SARS is likely to request supporting documentation:
- A copy of the employment contract.
- A copy of their passport reflecting all the entry and exit stamps.
- A schedule reflecting the movement in an out of the country of the taxpayer and confirming that the 183 and 60 day thresholds have been met.