If you are a South African working abroad, you already know how tricky South African expat tax can be. Between understanding tax for expats in South Africa, confirming whether you are a South African tax resident, and figuring out if you qualify for the SARS Section 10(1)(o)(ii) exemption, there is a lot to get right. One small detail that regularly causes big problems is incorrect IRP5 source codes on your annual tax certificate.
Top 3 key takeaways for expats on IRP5 source codes and expat tax
- Your IRP5/IT3(a) determines how SARS classifies your income. If the wrong IRP5 source code is used your foreign salary may be treated as local income, which can lead to unnecessary tax.
- Three codes matter most for expats.
3601 for local taxable income
3651 for foreign taxable income for residents
3652 for foreign non taxable income for non residents - Incorrect IRP5 codes can cost you thousands. Using 3601 by mistake can remove access to the SARS Section 10(1)(o)(ii) exemption or cause SARS to tax foreign income that should not be taxed at all.
Read more: What is the SARS foreign income exemption, and can you use it?
What your IRP5 actually does
Your IRP5 South Africa document might look like a simple administrative form but don’t let that fool you – the codes on it determine whether SARS sees your income as local, foreign taxable, or foreign non-taxable. When these codes are wrong, expats lose refunds or end up paying tax they do not owe.
Your IRP5/IT3(a) certificate summarises your earnings and PAYE for the year. Every line of income has an associated IRP5 source code, which tells SARS exactly what type of income it is. This is how SARS decides whether you are eligible for the foreign employment exemption, whether your foreign income should be taxed under non resident tax in South Africa rules, or whether your employer withheld PAYE correctly.
If the code is wrong, your entire tax assessment can be wrong and that’s a big deal.
The three IRP5 codes every expat should know
Most expat tax problems can be traced back to three specific codes.
3601: Local taxable income
Source code 3601 applies when you earn income for services performed physically in South Africa. If you work abroad and your IRP5 reflects 3601, SARS assumes your income is local even when it is not.
3651: Foreign taxable income
If you are a tax resident in South Africa who works abroad, your foreign salary should be captured under 3651. This code signals to SARS that your income is foreign and may qualify for the SARS Section 10(1)(o)(ii) exemption on the first R1.25 million of foreign employment income.
3652: Foreign non taxable income
This code applies to individuals who are non tax residents of South Africa and who render services abroad. Under South Africa’s rules for income tax for non residents, this income is not taxable. If 3601 is used instead of 3652, SARS will treat your foreign income as taxable South African income, which can eliminate any refund you are owed.
Why incorrect IRP5 codes cause major issues with expat tax
When a tax resident works abroad
Thandi works in Dubai where there is no income tax. She qualifies for the Section 10(1)(o)(ii) exemption, but because she is still a South African tax resident she must rely on her employer capturing her foreign salary correctly. They use 3601 instead of 3651 on the IRP5/IT3(a). SARS treats it as local remuneration and rejects the exemption. The result is a significant tax assessment on income that should have been exempt.
When a non resident works abroad
John has successfully ceased tax residency in South Africa and is now a non resident for tax purposes. He works overseas for a South African company. His income should be coded as 3652 but payroll incorrectly uses 3601. SARS then treats his foreign income as taxable because the source appears local. He cannot recover incorrectly withheld PAYE until the IRP5 is corrected.
These mistakes are extremely common and usually caused by payroll systems defaulting to local income codes.
Why employers often get the coding wrong
Many South African payroll systems follow standard South African payroll assumptions. They default to 3601 for remuneration unless the payroll administrator manually updates the code. Some payroll departments believe IRP5s cannot be corrected once submitted, which is not accurate.
SARS allows employers to resubmit corrected certificates at any time through eFiling. Employers remain responsible for ensuring all IRP5 tax information submitted is accurate and compliant.
How employers should manage expat payroll
To determine the correct code employers must confirm:
- Whether the employee is a South African tax resident or a non resident tax individual
- Where the services are physically rendered
Once this is clear, the correct code is straightforward.
- 3651 for residents working abroad
- 3652 for non residents working abroad
Payroll teams should also understand when special codes like SARS source code 3926 may be required. Incorrect codes can trigger audits and delay assessments. When in doubt employers should consult qualified expat tax consultants in South Africa to ensure compliance.
What expats should check
You can prevent most IRP5 problems by thinking ahead a few steps.
- Before your tax year starts: Tell your employer whether you are a tax resident or a non resident and where you perform your work. This helps them apply the correct code upfront.
- During the year: Check your payslips to ensure your income is classified correctly. Keep evidence of foreign workdays such as boarding passes, calendars, itineraries, and employment letters.
- When you receive your IRP5/IT3(a): Look for the codes 3601, 3651, or 3652. If anything looks incorrect, request a corrected certificate immediately. This ensures your tax return and your income tax for non residents or resident position is handled correctly.
Read more: South African working abroad? How to handle foreign income on SARS tax return.
Expat tax in South Africa: why it pays to get it right
An incorrect IRP5 source code might seem like a small mistake but for expats it can be financially painful. It can block access to the expat tax exemption in South Africa, result in incorrect withholding tax for non residents, or cause SARS to treat foreign sourced income as taxable South African income. The difference can easily run up a staggering tax bill.
Correct coding protects any refund you may be due, prevents unnecessary tax bills, and keeps you fully compliant with South African tax law for expats.
Read more: South African tax residency rules – expats, are you still tax residents of South Africa?
FinGlobal: cross-border tax specialists for expats
Managing tax for South Africans working abroad is challenging but understanding your SARS IRP5 and the meaning of each tax source code makes all the difference. Whether you are living abroad, planning a move back to South Africa or trying to correct an old filing, getting your SARS profile in order is one of the most important steps you can take.
FinGlobal can guide you through the process, verify your tax residency status, handle your tax emigration, fix coding or documentation issues and ensure your tax position is clean and compliant. We also assist with tax refunds, helping you recover what you are owed quickly and accurately. It is peace of mind, handled professionally from anywhere in the world.
To find out more about our convenient expat tax services for South Africans, leave your contact details below and we’ll be in touch!