Changes you need to know about SA's foreign employment tax exemption

If your employees work abroad, you need to understand how the amendment to Section 10(1)(o)(ii) of the Income Tax Act, 1962, impacts foreign income tax. This blog explains the key changes and what you need to know to ensure compliance and transparency.

Before the change

Before March 1, 2020, South African residents working abroad enjoyed full tax exemption on their foreign employment income under certain conditions. The aim of this was to prevent double taxation (in other words, paying tax in both South Africa and the host country). 

The new deal

While the exemption still exists, it now comes with a cap. Only the first R1.25 million of foreign employment income earned by a South African tax resident is exempt. Any income exceeding this amount is subject to normal South African income tax rates.

What it means for you

Awareness is key: Informing your employees working abroad about this change is crucial. They need to understand the potential tax implications of their income exceeding R1.25 million.

Record-keeping: keeping accurate documentation of your employees’ foreign income and tax paid in the host country (if any) is essential. This helps demonstrate compliance and facilitates claiming any applicable tax rebates.

Tax planning

If your employees earn over R1.25 million abroad, consider potential tax implications and consult a tax professional. They will give you advice about minimising tax liabilities and ensuring compliance.

Additional considerations

The 183-day and 60-day rules still apply: Qualifying for the exemption still requires meeting the existing criteria, including spending at least 183 days outside South Africa and 60 full days in the employment country.

Double taxation treaties: If your employee works in a country with a double taxation agreement with South Africa, explore potential benefits for reducing tax liabilities.

Get professional advice: While this blog provides an overview, complex tax matters require individual assessment. Consult a qualified tax professional for personalised guidance specific to your employees’ situations.

Staying informed and proactive is vital for navigating the complexities of tax regulations. By understanding the changes to the foreign employment income exemption and taking the necessary steps, you can ensure both your business and your employees remain compliant and avoid potential tax complications.