Lana Visser-Galant | 24 January 2025
Lana Visser-Galant is an associate financial planner at Fiscal Private Client Services. She has a B.Com in Quantitative Management and a postgraduate diploma in financial planning.
Over the years, the world has become a “smaller place” for many people and the possibility of being a South African resident (for tax purposes) earning foreign income is so much higher.
There has also been the rise of remote positions which offer the option of earning foreign income while remaining in South Africa, with the odd trip to the office here and there. If this is you and you spend part of the year outside of South Africa, tax exemptions on the income you earn may apply.
In South Africa, you could either be considered ordinarily resident for tax purposes, or you could be defined as a South African tax resident based on the physical presence test.
You are ordinarily resident if South Africa is your permanent home and centre of vital interests – that is where your family and financial interests are and where you return to after a temporary leave of absence.
This means that even if you spend the majority of your time in other countries for work purposes, but South Africa is the one constant place that you return to each time, you are considered to be ordinarily resident in South Africa.
If your ordinarily resident status cannot be established, then the physical presence test is applied. If you have spent the following amount of time in South Africa, you are considered a South African tax resident:
Residents and non-residents are taxed differently in South Africa, and it is important to establish your residency to ensure you meet your relevant tax obligations. For example, South African tax residents are taxed on their worldwide income, which includes employment income earned from foreign companies and investment income earned on global investments.
Non-residents, on the other hand, are only taxed on income earned from South African sources, such as rental income from a South African property, while capital gains tax (CGT) is only payable on South African fixed property or other assets of a permanent establishment, such as a South African business.
If you have established that you are a South African tax resident, but you earn foreign employment income, it means that this income must be declared in your annual tax return filed with the South African Revenue Service (SARS). You may qualify for a tax exemption, depending on the amount of time you spend outside of South Africa.
In terms of section 10(1)(o)(ii) of the Income Tax Act, an exemption of R1.25 million applies to South African tax residents who are employees rendering services to an employer outside of South Africa.
The exemption therefore does not apply to independent contractors.
This exemption also only applies to employment remuneration, including salary, taxable benefits, overtime or bonus payments, earned for workdays spent outside of South Africa, up to the maximum of R1.25 million of gross foreign employment income.
Any income over and above the R1.25 million exemption will be included in your taxable income and taxed at your marginal tax rate. Read more: How do the income tax brackets work and what is my marginal tax rate?
In order to qualify for the exemption, you must, within any 12-month period, have been outside of South Africa for more than 183 full days, of which more than 60 full days are continuous. If any tax was deducted and paid in the foreign country, foreign tax credits may apply.
Let’s consider this example: Sam is a South African resident who works for a company which pays her in Euros and requires her to spend six months in total each year in a European country.
Sam left South Africa on 29 February 2024 to start work bright and early on 1 March. She then stayed for three months until the end of May and returned to South Africa on 2 June.
Sam then went to a different country for another three-month project from August to October, leaving South Africa on 31 July and returning on 1 November. Sam’s days will be calculated as follows (days spent travelling are excluded as only full days are included):
Sam therefore spent more than 183 days in total outside of South Africa and each time was more than 60 consecutive days. Sam will therefore qualify for the expat tax exemption on the foreign income earned for the workdays spent outside of South Africa.
This exemption can significantly reduce your tax liability if you meet the necessary criteria. If you are unsure about whether you qualify for an exemption or not, it is always advisable to consult a tax practitioner, especially when dealing with specialised tax matters. It is also important to inform your financial planner to ensure that any tax implications are considered in your overall financial plan.