Unpacking the Budget Speech: proposed changes to foreign employment

Since the announcement of the 2017/2018 budget, TaxTim has been asked many times about the changes to the foreign employment income exemptions rules which could have a very negative effect on taxpayers working overseas.

Currently, if a South African resident works for a foreign employer and is out of the country for 183 days or more, within a 12 month period, and they fulfil various other conditions, their foreign employment income may be exempt from South African Income tax. Please read our blog on foreign employment income Foreign Employment Exemption for further clarification.  

As a result of this exemption, it is possible for individuals who are working in so-called “zero-tax jurisdictions” (for example, Bermuda or the United Arab Emirates) to escape the tax net altogether. This is because they are fortunate enough to be working in a country in which they do not have to pay tax, and they also fulfil the criteria to be exempted in South Africa.

The amendment proposed by the Finance Minister in February 2017, is to exempt foreign employment income from tax in South Africa only if it is subject to tax in the foreign country in which it was earned. No details were given regarding the rate of tax imposed in the foreign country. Therefore, it’s not clear at this stage whether for example, a 10% tax rate in the foreign country, would satisfy Treasury sufficiently to allow the s10(1)(o)(ii) exemption.

Often companies entice employees to leave friends and family and work in foreign destinations, by offering them attractive salary packages with favourable tax structures due to the s10(1)(o)(ii) exemption. This could all change if the proposed changes are implemented. This will be sure to ruffle some feathers – however, don’t stress yet as this has not been finalised. We will have to wait for further details to be announced.

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