South African residents are taxed on worldwide income, but a key exemption (Section 10(1)(o)(ii)) allows for the first R1.25 million of foreign employment income to be tax-free if specific residency and physical presence tests are met (over 183 days abroad, including 60 continuous days). Other foreign income (dividends, rentals) is generally taxable, though Double Taxation Agreements (DTAs) and specific exemptions (like foreign pensions) can offer relief, with SARS requiring declaration of all global income.
Key Principles
- Worldwide Taxation: South Africa taxes its residents on all income, regardless of where it’s earned or paid.
- Residency is Key: Your tax status as a South African resident (for tax purposes) determines your obligations.
Foreign Employment Income
- R1.25m Exemption (Section 10(1)(o)(ii)): You can exclude up to R1.25 million of foreign employment income if you:
- Work outside SA for an employer (resident or non-resident).
- Spend more than 183 days (any 12-month period) outside SA.
- Spend at least 60 of those days consecutively outside SA.
- Taxable Portion: Any foreign employment income above R1.25 million is subject to SA normal tax.
Other Foreign Income Types
- Foreign Dividends: Generally taxable, but rules differ if you hold less than 10% in the foreign company.
- Foreign Pensions: Social security pensions from other countries are usually exempt.
- Rental Income/Interest/Royalties: These are typically taxable in South Africa unless an exemption or DTA applies.
Relief from Double Taxation
- Double Taxation Agreements (DTAs): South Africa has agreements with many countries to prevent the same income from being taxed twice.
- Foreign Tax Credits/Exemptions: DTAs or other provisions can offer credits for tax already paid abroad or exempt certain income.
What You Need to Do
- Declare Everything: Report all foreign income on your SARS tax return (ITR12).
- Know Your Status: Determine if you’re a tax resident or non-resident.
- Document Everything: Keep records for SARS to prove your days spent abroad and foreign income details.
Important Note
Tax laws change, so always check the latest SARS guidelines or consult a tax professional for personalized advice.
If you would like to know more about the consequences of foreign employment on tax, please contact us: GervaseM@alertsprofessionalservices.co.za
