South African tax residents living abroad have faced increased expat tax obligations since March 2020, when tax laws were amended. Previously exempt from South African tax, these individuals are within the South African Revenue Service’s (SARS) tax net. However, a R1.25 million tax exemption is available annually to tax residents for foreign employment income, provided specific conditions are met. One essential requirement is spending at least 183 days outside South Africa within a 12-month period. Let’s unpack what this means in practical terms for South African tax residents expected to pay expat tax on their foreign employment income.

So, how does tax residency work in South Africa?

South Africa has a ‘worldwide income’ tax system. This means if you’re considered a South African resident for tax purposes, you need to pay tax on all your income, no matter where you earn it.

There are two main ways to be considered a tax resident:

1. Ordinary residence: This is about where you consider your ‘home’ to be. If South Africa is your usual place of living, you’re likely an ordinary resident.
2. Physical presence: If you’ve spent a certain number of days in South Africa over a specific period, you might be considered a tax resident based on physical presence.

Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.

You’re taxed on all your income if you’re a South African tax resident. But if you’re a non-resident for tax purposes, you only pay tax on income earned in South Africa.
It can get complicated, so it’s always a good idea to talk to a tax professional if you need clarification on your tax residency.

So, who is a South African tax resident?

Let’s break it down. To determine if you’re a South African tax resident, SARS looks at two main things, as mentioned above. According to Section 1(1) of the Income Tax Act, the term “resident” refers to any person who is, during the specific year of assessment:

• Ordinarily resident in RSA or
• Physically present in RSA

These are the grounds upon which South Africa’s tax residence is considered and decided. However, the Income Tax Act also states that the definition of “resident” does not include someone deemed to be the exclusive resident of another country by applying a Double Tax Agreement.

But here’s the catch: Just moving out of the country doesn’t make you a non-resident. You are technically still a tax resident until you officially cut your tax residency ties with the South African Revenue Service by completing tax emigration. There’s a process you need to follow once you’ve left the country, and you still might owe some taxes. So, don’t assume that leaving South Africa means you’re entirely off the hook!

Read more: Clarifying resident vs. non-resident tax status for South African expats.

Do I have to pay tax in South Africa if I live abroad?

South African residents earning income abroad are subject to South African income tax. This includes you if you have recently emigrated until you become eligible to cease tax residency with South Africa.

However, a tax exemption of R1.25 million is available for foreign employment income. To qualify for this exemption, tax resident individuals must spend more than 183 days outside South Africa in 12 months, including at least 60 consecutive days abroad. Income exceeding the R1.25 million exemption threshold remains subject to South African income tax at the applicable marginal tax rate.

It is important to note that this tax exemption does not automatically apply to your foreign employment income; you will need to prove to SARS that you qualify to use it.

Read more: A comprehensive guide to the SARS foreign income tax exemption for South Africans working abroad.

Who qualifies to use the foreign employment income exemption?

To qualify for the foreign employment income exemption in South Africa, you must meet the following criteria:

• South African tax residency: You must be considered a South African tax resident.
• Foreign employment: Employment services must be performed outside of South Africa, regardless of the employer’s location (South African or foreign).
• Physical presence abroad: You must spend more than 183 full days outside of South Africa within a 12-month period.
• Continuous period abroad: Out of the 183 days, at least 60 consecutive full days must be spent outside of South Africa within a 12-month period.

If all conditions are met, the entire portion of income earned from foreign employment services is exempt from South African income tax up to a maximum of R1.25 million per annum. Any income exceeding this amount is subject to South African income tax at the applicable marginal tax rate. However, the entire income amount must be declared to SARS on your ITR12 form (also known as your Income Tax Return).

Read more: What is exempt foreign employment income in South Africa?

The 183-day and 60-day rule for foreign income exemption

To qualify for the foreign employment income exemption, South African tax residents must meet specific physical presence requirements outside of South Africa.

The 183-day rule:

• Total days count: Every day spent outside South Africa contributes towards the 183-day rule total, regardless of whether it’s a workday, weekend, holiday, or leave day.
• Consecutive days not required: It’s unnecessary to spend 183 days continuously outside the country; the days can be accumulated over any 12-month period.

The 60-day rule:

• Continuous period: Individuals must spend at least 60 consecutive days outside South Africa within any 12-month period.
• Definition of consecutive: These 60 days must be without interruption.

12-month period

• Flexible period: The 12-month period used for calculating the 183 and 60-day requirements can start on any day of the year. It doesn’t need to align with the tax, financial, or calendar year.

Implications of the 183-day rule on expat tax in South Africa

Meeting both the 183-day rule and 60-day criteria is essential for claiming the foreign employment income exemption.

• Tax savings: If you meet the 183-day and 60-day criteria, you can significantly reduce your South African tax liability on foreign income by a maximum of R.125 million per annum.
• Careful record keeping: It is vital to maintain accurate records of your time spent outside South Africa to prove your eligibility for the exemption.
• Potential for double taxation: If you work in a country with a tax treaty with South Africa, you might be subject to tax in both countries. Understanding the provisions of the tax treaty is essential.

Are you overwhelmed by South African expat taxes? FinGlobal can help!

Are you a South African working overseas and struggling with your taxes? Feeling stressed by a complicated tax situation? We can help. FinGlobal offers a comprehensive suite of services designed specifically for South Africans abroad, including:

• Expat tax compliance: Ensure you’re meeting your tax obligations in South Africa and your new country of residence.
• Tax clearance for international transfers: Smoothly transfer funds overseas with proper tax clearance documentation.
• Tax refunds: Claim any tax refunds you may be entitled to.
• Tax emigration: Assistance with formally ending your South African tax residency.

Our team of experts has extensive experience dealing with the unique challenges South African expats face. We’ll work closely with you to understand your situation and provide personalised guidance. Ready to take control of your tax situation? Contact FinGlobal today! Send your questions about financial and tax emigration to info@finglobal.com.