Income Tax changes for South Africans Working Abroad

Proposed changes to the exemption on foreign-earned income, announced in the recent budget (on February 22 by former finance minister Pravin Gordhan at the 2017 National Budget) and how it will affect South Africans who work overseas, has become quite the controversial topic.

Under the current rules, South Africans who remain tax resident in South Africa under domestic tax law, whilst working overseas, are exempt from South African income tax on employment income earned overseas, on the basis that they are outside of South Africa for 183 full days (of which 60 days must be consecutive) during any 12-month period, and the services are rendered during the period/s of absence.

The exemption was introduced to prevent double taxation of South African residents working outside the country for more than 183 days, but Treasury had found there were situations in which no income tax was paid – in South Africa or in the foreign country.

Two draft bills, giving effect to what was announced in the budget, the 2017 Taxation Laws Amendment Bill and the 2017 Draft Tax Administration Laws Amendment Bill, now stand for public comment until August 18 2017, before Treasury and the South African Revenue Service (SARS) introduce them to Parliament.

Proposals of the Taxation Laws Amendment Bill include the removal of the foreign employment income tax exemption for South African citizens. 

If the legislation goes through Parliament, South Africans who work overseas could be taxed locally for foreign earnings from March 1 2019.  The effects of removal of the exemption would mean that tax would be paid on worldwide income in South Africa, whatever the length of time worked abroad, but with a relief though tax credits on foreign taxes paid. 

It appears there will be a two-year period before this implementation date, for Treasury and SARS to “iron out” administrative difficulties, the process for claiming tax credits on foreign taxes paid etc.

It is important to keep in mind that these amendments are not final and considerable discussions are to take place before they are implemented. 

We are also aware of a number of planning strategies around this issue but final legislation is required before taking this further.  We would like to point out the most obvious strategy of all: Simply leave and stay in Dubai or Mauritius and the issue is moot.

Watch this space for further updates.