Foreign Employment Income Exemption

We have attended.

We have hosted.

And we have been advising.

South Africa’s tax professionals have seen the concerns of so many taxpayers, their emotions and actions by the amendments to tax laws targeting the foreign earnings of South Africans that came into effect on 1 March 2020. We have also seen a significant increase in the number of SA residents seeking to cease their South African tax residency and formalise their resident status for exchange control purposes.

WHAT WE WANTED TO LET OUR CLIENTS KNOW

The aim is and was to at best know the two tests in terms of the Income Tax Act and how to apply it which will determine whether you are a “Resident” and ”Non-resident” for Tax purposes. They are the Common law test and the Physical presence test.

WHAT WE HAVE BEEN ADVISING

There is no one size fits all and every individual and family’s circumstance differ.

It is instrumental that we understand the fact that the taxpayer argument with SARS will hinge on the principle called “Burden of proof” which is also the golden thread that underlies proper tax planning. Where there is a dispute the root cause often ties back to different interpretations of the facts and whether they do or do not support the taxpayer’s ONUS OF PROOF.

This is also why we advised our clients who has the true intention to leave South Africa (for different reasons) to consider formal emigration. This refers to the formal South African Reserve Bank (SARB) & SARS process whereby the status of the international individual is noted on record as having changed to NON-RESIDENT. This will be a close conclusive objective indicator that the taxpayer is no longer “Ordinary resident” in South Africa else SARS may on prima facie contend differently.

In general, the rule states that any income from foreign employment above the set threshold of R1,25 million will become subject to tax for South African tax residents.

OUR CONCLUSIONS: THE OVERRIDE TEST  

The Double Taxation Agreements (DTAs) of South Africa with other countries contains relief should one find oneself in a situation of dual tax residency and almost always, the country of source has a first taxing right and the country of residency has the secondary right. The relief then comes in exemptions or deductions from taxes paid in the country of source.

Being Tax resident of SA means worldwide income are being taxed in SA and therefore the primary objective of a DTA is to prevent a single amount of income or capital in the hands of one person from being subject to tax twice.

THERE ARE ALWAYS CHANGES

The way forward and the emigration process with the South African Reserve Bank may in all change or not change

Finance Minister Tito Mboweni received wide ovation in his budget speech to phase out the “administratively burdensome” process of emigration through the South African Reserve Bank (Sarb). However, how this will phase out, we don’t know, this could only mean that it will not be that simple to prove your intention to have taken the steps emigrate and become a [tax] non-resident.

Godfried Kotze MCom Taxation

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