Moving abroad for work is not the same thing as leaving the South African tax system. Many South Africans working overseas assume that once they are out of the country, or once they stop applying for local jobs, SARS no longer has an interest in their income. That is not how it works, and getting it wrong can be an expensive mistake.
At PATC we help South Africans working locally and abroad manage their tax obligations correctly. Here is how South African tax residency, worldwide income and the foreign employment exemption fit together.
South Africa taxes residents on worldwide income
South Africa operates a residence-based tax system. If you are a South African tax resident, you are generally liable for South African income tax on your worldwide income, subject to applicable exemptions, deductions, foreign tax credits and any relevant Double Tax Agreement.
Simply leaving South Africa to work overseas does not, on its own, mean you have ceased to be a South African tax resident. Tax residency is determined by your individual circumstances, principally whether you remain ordinarily resident in South Africa. Your formal immigration status in another country is a separate question from your South African tax residency, and the two do not necessarily move together.
If you remain a South African tax resident, your foreign income remains relevant for South African tax purposes, even while you are working outside the country.
The foreign employment income exemption
A separate exemption exists for foreign employment income earned by a South African tax resident, under Section 10(1)(o)(ii) of the Income Tax Act. This exemption does not change your residency status. It simply allows qualifying foreign employment income to be exempt from South African tax, provided certain physical-presence requirements are met.
To qualify, you must render services outside South Africa for:
- More than 183 full days in aggregate, during any 12-month period; and
- More than 60 continuous full days, within that same 12-month period.
The 183 days do not need to be consecutive and can be built up over several trips within the 12-month period. The 60-day requirement is different: those days must run continuously.
Example
An employee spends 90 days outside South Africa, returns home, and later spends a further 100 days outside South Africa. That totals 190 days outside South Africa in aggregate, satisfying the 183-day requirement. If at least one of those trips included more than 60 consecutive full days outside South Africa, the physical-presence requirements for the exemption are met.
The R1.25 million exemption limit
Meeting the physical-presence test does not mean all of your foreign salary is automatically tax-free. The foreign employment income exemption is currently capped at R1.25 million per year of assessment.
- Foreign employment income of R800,000: the full amount may qualify for the exemption, provided all other requirements are met.
- Foreign employment income of R1,500,000: R1,250,000 may qualify for the exemption; the remaining R250,000 may be subject to South African tax.
- Foreign employment income of R2,000,000: R1,250,000 may qualify for the exemption; the remaining R750,000 may be subject to South African tax.
Two separate questions, not one
Tax residency and the foreign employment exemption are commonly confused, but they are two distinct questions that need to be worked through in order.
Step 1: Are you still a South African tax resident? If yes, your worldwide income generally remains within the South African tax system.
Step 2: Does your foreign employment income qualify for the exemption? If you remain a South African tax resident and you earn employment income while working outside South Africa, check whether you meet the Section 10(1)(o)(ii) requirements: more than 183 full days outside South Africa in aggregate, including more than 60 continuous full days, within a 12-month period. If so, the qualifying income may be exempt, up to the R1.25 million annual limit.
An important distinction
Spending more than 183 days outside South Africa does not automatically make you a non-resident for tax purposes. Equally, not having formally immigrated elsewhere does not automatically mean you remain a South African tax resident. These are separate determinations:
- Tax residency: has your ordinary residence in South Africa actually ceased?
- Foreign employment exemption: if you remain a South African tax resident, does your foreign employment income meet the Section 10(1)(o)(ii) requirements?
Deliberately ceasing South African tax residency is a separate process with its own determination and potential exit-tax consequences, and is not triggered simply by time spent working abroad.
Frequently asked questions
If I work overseas for more than 183 days, does that make me a non-resident?
Not automatically. The 183-day/60-day rule relates to the foreign employment income exemption, not to your tax residency status. Residency is assessed separately, based on your individual circumstances.
I have not formally immigrated. Does that mean I am still a South African tax resident?
Not necessarily. Immigration status and tax residency are assessed under different tests. You should have your residency position formally reviewed rather than assuming either way.
Is all of my foreign salary tax-free if I qualify for the exemption?
Only up to R1.25 million per year of assessment. Any qualifying foreign employment income above that threshold may be subject to South African tax.
Do the 183 days have to be worked in one continuous stint?
No, only the 60-day requirement must be continuous. The 183 days can be accumulated across multiple trips within the same 12-month period.
What if I want to formally stop being a South African tax resident?
That is a separate process from the foreign employment exemption, involving its own residency determination and potential exit-tax consequences. We recommend professional advice before taking any steps.
Let PATC review your position
Whether you are already working abroad or planning to, getting your tax residency and foreign employment exemption position right protects you from unexpected liabilities and penalties.
Call 031 702 8112 or email info@patc.co.za to have your tax position reviewed by our team.
Research for this article was prepared by Aaliya Cassim, Trainee Accountant at PATC.
