Foreign Employment Tax Exemption (Section 10(1)(o)(ii))

Foreign Employment Tax Exemption (Section 10(1)(o)(ii))

• 20 March 2020
• Individuals Tax
• The Tax Faculty

Important:

This Tax Law Change is effective 1 March 2020.

Remuneration in respect of services rendered outside the Republic for or on behalf of any employer is exempt from normal tax, if the employee was outside the Republic for a:

• For a period or periods exceeding 183 full days in aggregate during any period of 12 months; and
• For a continuous period exceeding 60 full days during that period of 12 months.

From 1 March 2020 the exemption will only apply to the extent that remuneration does not exceed R1.25 million (previously R1 million) during a year of assessment.  Any excess above the R1.25 million is subject to normal tax in South Africa.

It is important to note that only remuneration received or accrued in respect of services rendered outside the Republic during the qualifying twelve month period could qualify for the exemption – remuneration for services rendered inside the Republic remains taxable in South Africa.

Additional considerations:

• Includes fringe benefits and benefits under employee share schemes;
• Independent contractors and self-employed individuals do not qualify (they are not considered employees);
• Days outside South Africa include weekends, public holidays, leave and sick leave;
• Any 12-month period may be used to calculate the 183 days;
• The provisions of a DTA should be considered when the remuneration exceeds R1.25 million;
• Double tax relief in the form of a foreign tax credit (s 6quat) is available in South Africa where tax was paid in both countries on the same remuneration;
• For PAYE purposes the R1.25 million threshold should accumulate monthly,
• Once the R1.25 million threshold is reached, the income exceeding R1.25 million is subject to normal tax. The R1.25 million threshold may not be averaged over the year of assessment;
• If an employer withholds employee tax on remuneration that is exempt, the employee may only claim the refund on assessment;
• SARS may request supporting documents to substantiate the exemption e.g. employment contracts and copies of passports;
• Where a person is in transit through South Africa between two places outside South Africa and does not formally enter South Africa through a designated port of entry, the person is deemed to be outside South Africa.

For additional guidance refer to:

• SARS Interpretation note No.16 (Issue 3) (The Interpretation note still refers to the original R1 million exemption amount)
• SARS FAQs: Foreign Employment Income Exemption (s 10(1)(o)(ii))

Webinar Commentary

Access commentary and an in-depth technical summary on the Webinar On-Demand presented by Prof Jackie Arendse here: https://lnkd.in/gvZF_mQ

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