Currently, South African tax residents living abroad and earning remuneration in respect of services rendered outside of the country for or on behalf of any employer will be exempt from tax in South Africa, provided that the individual is outside of South Africa for more than 183 full days - 60 of which must be continuous days of absence from the country - during any 12-month period. There is currently no limitation on the foreign employment income exemption.
From March 1, next year the requirements will still apply, however, only the first R1 million earned from working abroad will be exempt from tax in South Africa. Accordingly, any foreign employment income earned over and above this amount will be taxed in South Africa, at a maximum marginal tax rate of 45 percent.
The requirement will affect only South African tax residents who earn remuneration in excess of R1m in respect of services rendered outside of South Africa, for or on behalf of an employer (which could be either a resident or non-resident employer). The R1m exemption will thus provide relief for lower- to middle-income South Africans working abroad, provided they meet the requirements referred to.
Historically, the purpose of introducing the tax exemption was to prevent double taxation of an individual's income between South Africa and the host country. However, the exemption has created opportunities for double non-taxation of remuneration derived from foreign services rendered by South African tax residents, where the host country imposes little or no tax on employment income.