Gone are the days of tax-free salaries
Many professions like nurses and teachers, as well as business people looking for broader experience, work abroad as an opportunity to expand their horizons while earning a hard currency often at low tax rates. However, the days are numbered for this tolerant tax regime.
From 2020, new rules will apply to foreign employment income tax exemption for South African residents – once they are finalised.
‘Double non-taxation’ means South African taxpayers earning a salary abroad have for years been eligible to benefit from paying low or no tax on salaries earned in other countries, combined with a domestic South African income tax exemption available to them.
Out with the old
This means that previously a salary earned abroad might potentially not be taxed in either the country of source or domestically here in South Africa.
There are caveats to benefiting from this exemption. In terms of section 10(1)(o)(ii) of the Income Tax Act, salaries earned abroad would be exempt from South African income tax if:
- the salary is earned for services rendered outside of South Africa
- the employee would be absent from South Africa for at least 183 days in a tax year
- at least 60 of these days must be consecutive
In with the new
In the 2017 national budget speech, Government announced its intention to withdraw this relief for South Africans working abroad, by the proposed withdrawal of the above exemption in terms of the Taxation Laws Amendment Bill published on 19 July 2017.
The draft Bill proposes that from 1 March 2019:
- South African residents will be taxable in South Africa on salaries earned abroad
- where income is taxed abroad, South Africa should grant a credit against taxes payable here
During hearings last year in Parliament’s Standing Committee on Finance, National Treasury suggested:
- the new rule may only apply to foreign remuneration above R1 million/year
- the number-of-days requirement be maintained
- the new rule be delayed to years of assessment commencing on or after 1 March 2020