New rules for income tax on foreign employment income

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Currently South African residents who earn employment income and are out of the country for 183 days or more of a tax year are not regarded as South African residents for income tax purposes and are not taxed in South Africa for that tax year.

Treasury is of the view that this foreign employment tax exemption was too generous, and that it could result in double non-taxation.

In the February 2017 budget, Treasury proposed that a South African tax resident working abroad for more than 183 days a year (of which 60 days are continuous) would in future be fully taxed in South Africa and would only be eligible for a tax credit to the extent that tax was paid offshore. After a public backlash, it revised the proposal so that the first R1 million of foreign remuneration would be exempt from tax in South Africa. The implementation of the amendment – previously scheduled for March 1, 2019 – was postponed to March 1, 2020.

To prevent monthly withholding of income tax both in South Africa and the host country, it is proposed that South African employers be allowed to reduce their monthly local PAYE withholding by the amount of foreign taxes withheld on the employment income.

South Africans working abroad will escape the tax change if they are not considered tax residents in South Africa or deemed to be resident in a foreign country because of a double tax agreement or they fall below the R1 million threshold.