Sayonara to Tax Free Earnings

Sayonara to Tax Free Earnings

The proposed amendment to section 10(1)(o)(ii), the exemption section referred to often as the so-called 183-and-60-day rule aims to limit the current tax-free earning situation of South African tax residents working abroad.

Under the current regime, taxpayers who are resident in the Republic and earn an income under a foreign flag, are exempt from paying tax on that income under 183-and-60-day rule. The proposed amendment aims to remove this exemption for taxpayers who are not taxed in the country in which they render their employment services.

There is currently no certainty as to when the proposed change will occur, given that it was announced at the 2017/2018 budget speech by current Finance Minister, Pravin Gordhan and there has, thus far, been no invitation for commentary by the public. More importantly, will the date promulgation of the amendment and the effective date differ? Will SARS apply the change retrospectively as it so surreptitiously did with employee relocation allowances?

In future, on the anticipated law change, an employee will need to prove that the income received for employment services abroad was taxed in the country in which the services were rendered. Without being able to prove this, the employee would not enjoy the benefit of the current tax exemption. On a side note, this will only be in reference to income tax on the employment income and not VAT, dividends tax or corporate tax.

Where the taxpayer remains tax resident, South African expatriates abroad must accept that the days of earning completely tax-free are over. Naturally, with the correct expert advice, avenues can be sought to reduce the impact of this proposed amendment.

Naturally, we await progress with eager anticipation and will keep our clients abreast of any news hereon.

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