Ricochet News

Relief for those working abroad – foreign remuneration exemption to be amended not repealed

By Patrick Emmett, Senior Tax Consultant - Mazars - Oct 18, 2017
Relief for those working abroad – foreign remuneration exemption to be amended not repealed

The proposal to repeal the exemption for foreign remuneration earned by South African tax residents working abroad, as contained in the Draft Taxation Laws Amendment Bill (DTLAB) which was released for public comment by National Treasury on 19 July 2017, caused much panic and anxiety.

National treasury confirmed on 14 September 2017 in the Draft Response document to the public comments received by the deadline of 18 August 2017 that 1,308 comments were received in total with regards to the proposed repeal of the foreign remuneration exemption alone.

Currently foreign remuneration earned by South African tax residents is exempt from income tax in terms of section 10(1)(o)(ii) of the Income Tax Act, No. 58 of 1962 (the Act), provided the individual is outside of South Africa for a period (or periods) exceeding 183 days in aggregate (of which 60 days must be continuous).

With the repeal of the exemption, the DTLAB proposed that the foreign remuneration would be fully taxable in South Africa, but that the taxpayer will be entitled to claim a tax credit in South Africa for the foreign tax paid in terms of section 6quat of the Act. It is proposed that the amendment will come into effect from 1 March 2019.

The Draft Response document highlighted that the comments received were dominated by three economic concerns, as follows:

  • the potential impact on money sent to South Africa, including retirement savings, investment and living expenses;
  • poor employment prospects; and
  • the high cost of living abroad.

Most of the concerns raised were received predominantly from the Middle East (where a number of low tax jurisdictions occur) and also from countries with similar tax regimes to South Africa, such as the UK. Those affected work mainly in the service sector, for example finance, education, health and security.

National Treasury have considered the concerns raised by those affected, especially those in the relatively lower income brackets, and the negative effect the repeal of the exemption would have on them and any future remittances to South Africa, and have indicated that the exemption will not be repealed, but will be amended.

In this regard, it is proposed that the first R1 million of foreign remuneration will be exempt in terms of section 10(1)(o)(ii) of the Act, provided the existing requirements are met. Any amount earned above R1 million will not qualify for the exemption and will be fully taxable in South Africa.

We however await the release of the second DTLAB to confirm that the above proposal is indeed taken forward.

For more information, visit Mazars Port Elizabeth at 30 Bird Street, Central, Port Elizabeth, or call 041 501 9700. Also visit them at www.mazars.co.za