The following article will provide a brief overview of the current legal position pertaining to a South African resident’s tax liability for foreign employment remuneration, as well as the proposed changes to the current position.

South Africa has a residence-based tax system, which means that a South African resident is subject to tax on its worldwide income. South African persons will therefore be liable for tax in SA on their remuneration earned abroad. However, SA provides unilateral relief from double taxation in certain instances. One of the unilateral double tax relief provisions that a SA resident can utilise in instances where the SA resident is rendering employment services in a foreign state can be found in section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (“the  Act”). Section 10(1)(o)(ii) provides that remuneration derived by an employee for services rendered in a foreign state is exempt from tax in South Africa if such person was outside SA for a continuous period exceeding 60 days, as well as more than 183 days in total during the year of assessment.

The Draft Taxation Laws Amendment Bill 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Bill proposes, inter alia, that the foreign employment remuneration exemption under section 10(1)(o)(ii) of the Act be repealed. This proposed amendment to the Act is to come into effect from 1 March 2019. South African resident persons rendering services abroad will therefore have their remuneration subjected to South African tax as well as foreign tax. According to the explanatory memorandum on the Draft Bill, the reason for repealing the exemption is due to the current exemption creating opportunities for double non-taxation in cases where foreign host countries don’t impose income tax on employment income or do so at a significantly reduced rate.

Such persons will, however, be able to utilise section 6quat of the Act, which provides a South African person with a tax credit for taxes already paid abroad on that income. This means that South African residents will be subjected to South African tax on their foreign remuneration, however their tax liability will be reduced by the tax paid abroad that arose from that remuneration.