By The Tax team

In a previous article, we briefly addressed one of the proposals in the Draft Taxation Laws Amendment Bill, which was published on 19 July 2017. This Draft Bill proposes, inter alia, that the foreign employment remuneration exemption under section 10(1)(o)(ii) of the Act be repealed. South African resident persons rendering services abroad will therefore have their remuneration subjected to South African tax as well as foreign tax.
Since the publication of our previous article, however, National Treasury and SARS published a draft response document on the Taxation Laws Amendment Bill, 2017. This follow-up article will provide an update on the anticipated changes to the unilateral tax relief provision pertaining to foreign remuneration accruing to a South African resident person.

Initially, the proposed amendment to the Act was to come into effect from 1 March 2018. One of the comments that were submitted to Treasury pertaining to this point was that individuals from as far back as 2001 had made the decision to work and live abroad based on the then current tax treatment of such foreign remuneration. It was therefore submitted that such a drastic change in tax liabilities within a space of 1 year for those individuals would be excessively harsh, especially considering that many of those individuals would have concluded foreign employment contracts in excess of one year. Treasury seems to have accepted this criticism of the Bill. In its response, Treasury proposed that the effective date for the repeal of the unilateral tax relief provision be extended to 1 March 2020 so to allow more time for individuals to adjust their circumstances.

Another noteworthy public comment that was made was that the draft legislation goes further than the initial proposal in the 2017 Budget Review, which was that foreign employment income will only be exempt from tax if it is subject to tax in the foreign country. On this point, Treasury noted that the proposal was revised when drafting the Bill because if an exemption only applied to employment remuneration from jurisdictions with no income tax, then it may inadvertently have favoured other jurisdictions with low income tax rates. The revised proposal therefore attempts to equalise the tax treatment of South African tax residents rendering employment services in all countries.

Another significant comment that was submitted by the public to Treasury was that the proposed repeal of the unilateral tax relief provision will have a considerably negative impact on the remittance of funds to South Africa. This includes amounts remitted to family members to fund their cost of living in South Africa, investment of foreign income in South African businesses and foreign remuneration spent in South Africa during visits.
In its response to this comment, Treasury stated that the proposed change to the tax treatment of foreign remuneration will be amended to allow the first R1 million of foreign remuneration to be exempt from tax in South Africa if the individual is outside of South Africa for more than 183 days and for a continuous period of longer than 60 days during that 12 month period.

Conclusion

The proposal to delay the repeal of the foreign employment remuneration exemption from 2018 to 2020, as well as the proposed change to allow R1 million of foreign remuneration per annum to be exempt from South African tax, will certainly be welcomed by taxpayers. It must, however, be noted that repealing the foreign employment remuneration exemption appears to suggest that government is conceding that it is unable to increase economic growth and employment (and thereby increasing the collection of income taxes) to the levels required to keep the fiscus afloat.