With SARS becoming increasingly crafty in their methods of tracking down South Africans earning an income overseas, it’s important for expats to get their tax affairs in order. This is because foreign employment income is no longer tax exempt in South Africa, and tax residents earning abroad are now expected to file a tax return in South Africa and pay tax on their overseas income. So what do you need to know about your tax obligation in South Africa? First, it can be reduced by the foreign income exemption. Second, you’ll have to keep paying tax in South Africa unless there’s a Double Tax Agreement that states otherwise, or until you’ve completed the process of tax emigration and received confirmation from the South African Revenue Service (SARS) that you are now a non-resident for tax purposes.
Do I have to pay tax on my foreign income in South Africa?
Yes, if you are still considered a South African tax resident. No, you do not have to pay tax on your foreign income, if you have been confirmed a non-resident by SARS.
Read more: Expats! Are you still a tax resident in South Africa? Here’s how to find out.
What is the expat tax exemption in South Africa?
South Africa has a foreign employment income exemption for South African tax residents who work outside of South Africa. However, it must be pointed out that this exemption does not apply automatically, and the individual taxpayer will need to request that it be applied to their tax return, after having shown eligibility to utilise the exemption by meeting all of the relevant criteria.
The expat tax exemption is available if the following conditions are met:
- The individual qualifies as a tax resident of South Africa.
- The individual spends more than 183 days outside of South Africa in a 12-month period.
- During the 183-day period, the individual spends at least 60 days continuously outside of South Africa.
- The income is earned in respect of services rendered outside of South Africa.
The expat tax exemption is limited to the first R1.25 million of foreign employment income earned in a year of assessment. Any foreign employment income earned in excess of R1.25 million is taxable in South Africa. The foreign employment income exemption is a valuable tax benefit for South African expats. It can help to reduce the amount of tax that they have to pay on their foreign earnings. However, it is important to note that the exemption is subject to the above mentioned conditions.
- Read more: How do I declare foreign income on my tax return?
- Read more: What is the foreign income tax exemption and how do you claim it?
What types of income does the foreign employment income exemption apply to?
The exemption applies to the following types of income:
- Salary and taxable benefits
- Leave pay and overtime pay
- Wages, bonuses, and gratuities/tips
- Commissions, emoluments, and service fees
- Allowances, such as travel allowances, advances, and reimbursements
- Amounts disbursed from broad-based employee share plans
- Amounts received related to shares vesting
What income does not qualify for the foreign income exemption?
- Income that is not earned in respect of services rendered outside of South Africa
- Income that is earned from a South African source
- Income that is exempt from tax in the country where it is earned
- Income that is subject to a double taxation agreement between South Africa and the country where it is earned.
How much foreign income is tax free in South Africa?
As mentioned, up to R1.25 million of your foreign employment income can be exempt from your tax liability in South Africa if you are a tax resident. This exemption must be claimed on your tax return, and you must declare the full amount of income earned to which the exemption is then applied. To do this, you will need to complete the relevant section of your tax return and provide evidence you meet the requirements to use the exemption. This evidence may include your copies of your passport, employment contract, and proof of your stay outside of South Africa for the relevant time periods.
FinGlobal: expat tax specialists for South Africans
For South Africans managing their tax compliance in two jurisdictions, it can get tricky knowing what you need to file and when. FinGlobal is here to assist and ensure that you’re always up to date on your tax obligations, and that your tax affairs are as hassle-free and streamlined as possible. From claiming the foreign employment income exemption, to tax clearance and tax exit, we’re ready to help!
Simply leave us your contact details and we’ll be in touch to discover how we can assist you.