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21 Feb 2020

The who, what, where and how of taxable foreign income

For many, finding employment abroad has proven to be the answer not only for its professional opportunities but also for the tax exemption is has offered them. As of 1 March 2020, however, the tax exemption will only apply to the first R1-million earned through foreign employment according to an amendment to s10(1)(o)(ii) of the Income Tax Act.

This will not affect everyone, though. To be exempted from paying tax on your foreign income, you have to adhere to the following stipulations:

  • The individual must be a South African tax resident in terms of section 1 of the Act
  • The remuneration has to be garnered from one of the taxable incomes listed in section 10
  • The services rendered outside of the Republic of South Africa should be for at least 183 days of a 12-month period
  • 60 days of this period must be continuous service

Regarding the exempted amount, if the taxpayer’s foreign income exceeds the R1-million mark, the exceeding amount will be subject to normal taxation. Due to the possibility of income already being taxed in terms of the tax laws of the country it originated from, there are measures in place for taxpayers to avoid double taxation. It is important to keep in mind, though, that if the foreign tax that is deducted is less than what South African tax would be, SARS will still be liable to deduct the outstanding tax. For instance, if a person was taxed at 25% in Botswana, but falls within the 45% tax bracket in South Africa, SARS will still be owed the remaining 20%. Paying this tax balance does not constitute double taxation.

While many are considering financial emigration to avoid this amendment affecting them, the fact is that simple financial emigration does not necessarily mean you cease to be a tax resident in the Republic of South Africa in terms of the Act.

To find out how you may be affected and to plan accordingly, make sure to speak with your financial advisors before 1 March 2020.

Gerhard van Graan ([email protected] / 082 900 4441)

Herman Nieuwoudt ([email protected] / 083 864 0654)

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