From news articles circulating to queries from clients, the question on everyone’s lips is:
What exactly is the deal with Foreign Employment Income?
The National Treasury has proposed removing the foreign employment income tax exemption for South African residents.
The Draft Rates and Monetary Amounts and Amendment of Revenues Laws Bill, which is currently open for public comment until 18 August 2017, is primarily aimed at high-income earners who were using offshore tax havens to circumvent national income tax laws.
Under the current laws, if a tax resident works in a foreign country (outside of South Africa) for more than 183 days per year and passes the current income thresholds, the income earned from employment in that country during this period will be exempt from tax in South Africa.
Speaking to BusinessDay, Treasury chief director of legal tax design Yanga Mputa explained that while the exemption was introduced to alleviate the tax burden on employees, Treasury had found there were situations in which no income tax was paid in SA or in the foreign country. In some countries, such as the United Arab Emirates, no income tax is paid.
Removing the exemption would mean that tax would be paid on worldwide income in SA, whatever the length of time worked abroad, though tax credits would be recognised for foreign taxes paid.
Jerry Botha, managing partner of Tax Consulting South Africa, explained how South African residents working overseas will have to pay tax. For example if they fall within the 45% personal income tax bracket, and if they pay 25% tax in the foreign country, they will have to pay the 20% difference to SARS.
Subject to any changes, the proposals will come into effect on 1 March 2019.