Tax Tuesday: Foreign-employment income tax

De Wet De Villiers Latest, Tax Tuesday

It’s not uncommon for South African tax residents to find themselves rendering employment services for their South African employer abroad, or being headhunted by a global company that enjoys a trusty South African’s work ethic. Whilst this allows South African tax residents the freedom to travel and see the world, it does raise the question of where income earned abroad will be taxed.

This article looks at the tax implications of foreign-earned income by South African tax residents. It does not consider the case of individuals who have permanently re-located abroad and who are no longer South African tax residents.

Will I be taxed on foreign income?

South Africa taxes its residents on a worldwide-income basis, and they are sure to want their fair share of the taxes on income earned abroad. Fortunately, South Africa does provide for a tax exemption on the first R1.25 million in foreign-earned employment income, subject to certain requirements.

An important requirement is that the person needs to be outside of South Africa for longer than 183 days in any 12-month period and 60 of those days need to be continuous. However, this period doesn’t have to align with the South African tax year. If your 183 days away from South Africa straddles tax years, you’re not dead in the water (with regard to claiming the exemption).

Death and taxes…

But don’t imagine that the foreign-earned income is, on a global basis, received tax-free. It’s likely that the jurisdiction in which the services are rendered will exercise their taxing rights on the income earned in that jurisdiction. Whilst South Africa may only tax amounts in excess of R1.25 million, the foreign jurisdiction may well choose to tax the entire  income.

Will I be double taxed?

For amounts in excess of R1.25 million, South Africa will include the income in that person’s taxable income for the year of assessment. This doesn’t result in the income being double taxed. The foreign jurisdiction will still want to tax the entire foreign-earned income, but SARS will be aware of this. If both South Africa and the other jurisdiction tax the income earned, South Africa would need to provide a tax credit for the foreign taxes paid on that income.

In short, you must be cognisant of the tax liability that follows foreign-earned employment income. Whilst it’s highly unlikely that such income will ever be “double taxed” it’s just as unlikely that the income will never be taxed by either jurisdiction!

Tax Tuesday

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts at AJM Tax share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday.

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