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Working remotely? You could be liable for double taxation

In these ever-changing times, many South Africans working abroad have found themselves working back in their home country. Although this may not have been their first choice, SARS is tightening its hold on foreign income earners, and the tax authority will be diving deeper into expat taxes, but what does that mean and how will that affect your taxes this year? Here’s what you need to know.

Usually, in the case where Saffas were working and earning an income in a foreign country, it was possible to apply for foreign income exemption provisions on the condition that they spent 183 days outside of the borders of South Africa. Of these 183 days, at least 60 days need to be consecutive days in a period of 12 months. This exemption applied to all income earned for foreign services, but SARS has amended the foreign income exemption provisions and as of 1 March 2020, this exemption is capped at a maximum of R1.25 million earned per annum.

Many expats who live and work abroad, were repatriated back home at the beginning of the pandemic. For many, their return was involuntary and their return home meant that they were temporarily unemployed or where possible, some were able to continue working remotely, but unbeknownst to most, their tax obligations changed as a result of their move. As saffas found themselves back in SA, if they were earning an income - be it from a company in SA or not - the conditions of the foreign income exemption provisions no longer apply (because they no longer met the requirement of being out of the country for 183 days).

As many South Africans found themselves in unprecedented circumstances, they reached out to SARS to make some sort of concession during this time. SARS has amended the condition of the foreign income exemption provision by reducing the 183 days by 66 days - the period that SA was in lockdown level 5. This means that South Africans would have needed to only have spent 117 days in another country for any 12 month period for years of assessment ending from 29 February 2020 to 28 February 2021 . However, the condition of 60 consecutive days still needs to be met.

The problem with these amendments is that many specific factors have not been considered. Firstly, many borders have been closed for much longer than the 66 days that SA was in lockdown level 5. In some cases where South Africans may have been prepared to return to their assigned country to continue their work, it is highly likely that the borders to these countries may have been closed.

Some countries went through a period of re-opening their borders, but as a result of the South African variant, many borders have been closed to South Africans. The mutation, called N501Y, make the infection more contagious, and many countries were and still are cautious about allowing people in, especially if they are travelling from South Africa.


The double-edged tax sword

It is worth highlighting that if the South African was earning money from abroad while working remotely in SA, the income would be regarded as sourced in SA, which gives SARS the right to taxation.

To add to the load, the assignment country (i.e the foreign country in which the South African was employed) may also withhold taxes on their income, if their salary is paid through local payroll in the foreign country. The South African Income Tax Act does not make provision for foreign tax relief in the case where that income is regarded as South African source. This means that the South African may face double taxation if the assignment country does not have domestic legislation supporting the elimination of double taxation.

While South Africa has relaxed many of their travel restrictions, many countries around the world have not. With SARS’ amendments, South African taxpayers who usually work overseas need to be aware of all the tax rules in SA and their assignment country as they may be liable to bear the tax brunt at the end of the day.



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