As a South African tax resident working abroad, you may be eligible for a tax exemption on your foreign employment income, provided certain conditions are met.
This exemption can offer significant relief, as it allows for up to R1.25 million of foreign income to be excluded from tax.
Under section 10(1)(o)(ii) of the Income Tax Act, SARS provides a taxpayer with an exemption for foreign employment income, limited to R1.25 million. For the exemption to be applicable, a taxpayer must be a tax resident of South Africa, and an employment relationship must exist. This means that self-employed individuals and independent contractors do not qualify for this exemption. In addition, the taxpayer must be outside of South Africa for an aggregate period exceeding 183 days during any 12-month period. Importantly, at least 60 of those days must be continuous.
The exemption applies to various types of income, including but not limited to salaries, wages, overtime pay, bonuses, leave pay, commission, and travel allowances. It is essential to note that the income must be directly related to services rendered outside South Africa. If the services are provided while physically present within South Africa or in any other circumstance that does not meet the criteria for foreign employment, this exemption will not apply.
If a taxpayer qualifies for this exemption, foreign employment income of up to R1.25 million will be exempt from tax, provided that the income earned relates to services rendered outside of the Republic. However, any foreign employment income exceeding this threshold will be subject to tax according to the standard individual tax rates.
Let us look at an example:
- A taxpayer earned R2 million of foreign employment income.
- Of this R2 million, R1.25 million will be exempt from tax.
- The remaining amount of R750 000 will be taxed as follows:
- R179 147 + 39% (R750 000- R673 000) = R 209 177
Please note that this is just a basic example; services of a professional tax consultant should be used.
Please feel free to contact us for further information on taxation of foreign employment income.