South African Tax Law currently stipulates that if a South African resident works outside the Republic for more than 183 full days (in aggregate) in any 12 month period and for a continuous period exceeding 60 full days during that 12 month period, the foreign employment income earned is exempt from income tax within the Republic irrespective of whether the resident pays any income tax in the foreign country.

In some countries, especially those in the Middle East, no income tax is charged by their governments and therefore South African residents employed in these countries, who also qualify for the 183-day exemption in the Republic, pay no income tax at all. National Treasury views this double non-taxation as unfair.

National Treasury has published draft tax law amendments proposing all South African residents be taxed on their foreign employment income by doing away with the current 183 day/ 60 day continuous stipulation in its entirety.

The 183-day stipulation (60 of which must be consecutive) which is based on an exemption principle, was initially introduced to prevent South African residents from double taxation of foreign employment income in both South Africa and the foreign country. The draft bill proposes to delete this exemption section in its entirety from the Income Tax Act which will result in South African residents being taxed on their foreign employment income, and introduce a foreign tax credit in respect of taxes paid on foreign employment income in the foreign country. The South African resident will only pay tax on the difference between their South African tax due and the foreign tax already paid.

Up until 18 August 2017 the draft amendment bill was open for public comment and, should the proposed amendments be written into law, the application thereof will come into effect from 1 March 2019. South African tax residents earning foreign employment income in tax exempt countries will be hit quite hard as they could potentially have to pay up to 45% of their foreign income earned over to South African Revenue Service, where currently they enjoy the benefits of the full 100% of their income earned less any foreign taxes paid. Due to high costs of living and other financial factors, many may be forced to return home to South Africa, some possibly to no job at all. One option would be to officially emigrate, in which case a Capital Gains event is triggered and the resident will have to pay Capital Gains Tax on the disposal of certain of their South African assets. So for South African tax residents who have high value assets in South Africa this could be quite costly. The other possible option is that South Africa and the relevant foreign country could establish a tax treaty (if one doesn’t already exist) whereby the foreign country issues the South African resident with a tax residency certificate. This would mean that the South African will no longer be resident in the Republic for tax purposes. They will however also have to pay exit taxes on the deemed disposal of their South African assets. This option involves a long and complicated process.

Government is moving quickly with this proposal, having already issued two draft bills for public comment. If these drafts haven’t been contested loudly enough by the public, they will be written into law following the signing of the tax proposals.

While the outcome of these proposed amendments remains unknown, the future of South Africans working abroad looks bleak as SARS will continue to find a way to tax this foreign employment income.

Melissa Haygarth

Trainee Accountant, Durban