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How does the 183 day rule affect South Africans earning income from Foreign Sources

15 May 2024
Author: Neil Helps

How does the 183 day rule affect South Africans earning income from Foreign Sources

Even if you're residing abroad, you are technically still a tax resident of South Africa until you have formally ended your tax residency with the South African Revenue Service.

What does this mean for taxpayers? You must pay tax to SARS on income earned abroad and in South Africa. It is your responsibility to fulfill this obligation whilst being a tax resident of South Africa.

The sole method to end your tax liability to SARS is by finalizing the tax emigration procedure. If you are a tax resident, you may be eligible for tax relief through the foreign employment income exemption.

South African Tax Residency - Do I pay Tax if I Live and Work Overseas?

If you moved from South Africa recently, you must pay taxes on all your income. You must continue to do so until you are no longer considered a resident for tax purposes.

Being a non-resident for tax purposes means you don't meet the requirements for tax residency according to SARS. Once you no longer meet the requirements of any one of the tests, you become eligible to cease your tax residency with SARS.

What is the foreign income exemption in South Africa?

South Africans living abroad may be exempt from paying taxes on the first R1.25 million they earn from working overseas. This exemption is granted if they meet all the requirements set by SARS. South African tax residents can be exempt from paying income tax on foreign employment income. This exemption is provided for in Section 10(1)(o)(ii) of the South African Income Tax Act.

Who qualifies for the foreign employment income exemption in South Africa?

You can only qualify for this foreign employment income exemption if you meet the following requirements:

  1. You qualify as a South African tax resident.
  2. You perform employment services outside South Africa on behalf of an employer (it does not matter if the employer is South African or foreign)
  3. You spend at least 183 full days physically outside of the borders of South Africa in any 12-month period.
  4. You spend at least 60 consecutive full days outside the Republic within a period of 12 months.

If you meet all four requirements, the money you earn from working abroad won't be taxed in South Africa. You can earn up to R1.25 million per year in foreign employment income without being taxed in South Africa. Any amount earned above this will be taxed at your normal tax rate for the year.

Who does the 183-day tax rule apply to?

Individuals who meet the requirements for South African tax residency who earn foreign income abroad, must meet the conditions of the 183 day tax rule if they intend to use the foreign employment exemption outlined in section 10(1)(o)(ii) of the Income Tax Act.

The exemption applies to certain types of foreign employment income, like salaries, bonuses, commissions, and benefits. It also includes allowances for travel and reimbursements, as well as payments from employee share plans.

Important to note: Therefore, the exemption and the 183-day tax rule does not apply to independent contractors, freelancers, or self-employed individuals.

What other considerations are relevant to the 183 day tax rule?

To see if someone can use the foreign income exemption, check if they were in the country for 183 days:

  • The 183 day tax rule includes every calendar day that passes, not just working days.
  • This means that weekends, public holidays, annual leave, sick leave, and off-duty time spent abroad (while in employment) all add up toward meeting the 183-day time requirement.
  • The 12-month period is not restricted to a calendar year, fiscal year or tax year, it is essentially any sequence of 12 successive months.

Important to note Provisional Tax

If you are an independent contractor, and your taxes aren't being deducted from your income, and you don't qualify for the Foreign Employment Income Exemption, then you will automatically also be classified as a Provisional Taxpayer and be required to submit Provisional Tax returns every 6 months to SARS.

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