The days of enjoying a tax-free income for working overseas for lengthy periods may soon come to an end. The Budget Review signals that National Treasury will propose an amendment to tax legislation that allows you to earn a tax-free income while working in a foreign country if you are out of South Africa for more than 183 days a year. The exemption applies regardless of whether you pay tax in the foreign country.

The Budget Review says the exemption appears “excessively generous”, and if the foreign country does not tax you, you enjoy double non-taxation.

The Budget Review states that Treasury will propose that the exemption be adjusted so that foreign employment tax will be exempt from tax only if it is subject to tax in a foreign country.

According to Cliffe Dekker Hofmeyer’s Budget Speech Alert, many South African tax-resident individuals seconded by South African-resident employers to work in offshore jurisdictions for certain periods successfully use this exemption.

At a presentation this week hosted jointly by the South African Institute of Tax Practitioners and the Financial Planning Institute, Christopher Axelson, the director for personal income tax and saving at National Treasury, was asked if the amendment would mean that a person working in Dubai and not paying tax there would have to pay tax in South Africa, whereas a person working in Mauritius and paying tax at a rate of 15percent - much lower than the tax rate in South Africa - would not have to pay South African tax.

Axelson said Treasury has not yet finalised the proposal and would do so only after discussing it with the South African Revenue Service.