Section 10(1)(o)(ii) facts and important points to note:
South Africa changed from a source basis of taxation to a residence basis of taxation. This resulted in the worldwide income of South African residents being subject to income tax in South Africa, since 1 January 2001
Section 10(1)(o)(ii) of the Income Tax Act, however states that where:
- remuneration is derived from services rendered outside South Africa
- by a South African resident employee
The employee is exempt from normal tax in South Africa if the following requirements of the section are met, namely:
- The individual must be in an employment relationship (evidenced by a contractual relationship);
- The remuneration must be earned for services rendered outside of South Africa. Accordingly, remuneration relating to days worked in South Africa will remain taxable in South Africa;
- The services may be rendered on behalf of any employer. It is not restricted to a South African employer and it can be services rendered to a foreign employer;
- The individual must render services outside of South Africa for a period or periods exceeding 183 full days – (that is at least 184 days) in any 12-month period commencing or ending during that year of assessment. The period of more than 183 days need not be consecutive;
- The individual must render services outside of South Africa for a continues period of more than 60 days – that is at least 61 days during that 12-month period;
- The 12-month period referred to is not aligned to the South African tax year, but must include consecutive calendar months. At least one calendar month must fall within the tax year during which the exemption is sought.
Taxpayers can be requested by SARS to submit some form of documentation to confirm their absence from the Republic.
This documentation may include:
- Secondment letters,
- employment contracts from foreign countries, and
- copies of passports.
Where a person who has already complied with the exemption requirements of section 10(1)(o)(ii) in a year of assessment, spends vacation leave or sick leave in South Africa during the same year of assessment, the remuneration received by the person during that period will continue to be exempt from tax in terms of section 10(1)(o)(ii) if:
- the remuneration is attributable to the number of vacation or sick leave days credited to the employee in respect of and during the period of service outside South Africa, and
- under a vacation or sick leave scheme operated by the employer that is similar to vacation or sick leave schemes in the South Africa for persons employed in South Africa.
Section 10(1)(o)(ii) of the Act and the employer:
An employer that is satisfied that the provisions of section 10(1)(o)(ii) will apply in a particular case may elect not to deduct employees’ tax in a particular case. It must be noted that if it is found that the exemption was not applicable the employer would be held liable for the employees’ tax not deducted as well as the interest and penalties levied by SARS on assessment.
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