Numerous articles and discussions are available on the world wide web in this regard, but with filing season in full force, we have had numerous questions from clients in this regard.
When you are working for an overseas employer your first step will always be to determine whether you are a South African (SA) tax resident as defined. Your tax residency status determines how you are treated with regard to taxation in a particular country.
SA Resident or not?
An individual is regarded as a tax resident of SA if he or she is ordinarily resident in SA or meets the requirements of the physical presence test. To determine your tax residency status, there are two sets of criteria that you’ll need to check your circumstances against. The first is the ordinary residence test. If you don’t meet the criteria of this test, then you will move onto the physical presence test.
- Step 1: The ordinary residence testYou can still be regarded as being resident in SA regardless of the number of years you’ve spent outside the country. This is because the South African Revenue Service (SARS) determines your residency by where your assets and family are based as well as the location of your permanent home, among other factors.In some circumstances, dual residency is also a factor. If, for example, you’ve been working in Dubai for the past 10 years, you could find that you are a dual resident because you are a tax resident in both the UAE and in South Africa. In this situation, you would need to check if there’s a double taxation agreement (DTA) in place and where that agreement assigns your residency to. Please note, DTA’s are not dealt with in this article.
- Step 2: The physical presence testThis is a calculation of the actual amount of time you physically spend in SA. You are considered a SA tax resident if you meet all of the criteria below:
- 91 days in South Africa in the current year of assessment, and
- 91 days or more in each of the preceding five years of assessment, and
- 915 days in total during those five preceding years of assessment.
An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside SA for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.
If the individual is neither ordinarily resident, nor meets the requirements of the physical presence test, that individual will be regarded as a non-resident for tax purposes. This means that individual will be subject to tax only on income that has its source in SA, for example, interest earned from a SA Bank; rental income earned from a property in SA; and services rendered in SA.
Section 10(1)(o)(ii) exemption:
When an individual qualifies as a SA resident, earning foreign employment income, the section 10(1)(o)(ii) exemption (not dealt with in depth in this article) criteria needs to be taken into account.
- There must exist an employment relationship; and
- there must be a formal employment contract (with a resident OR non-resident employer); and
- remuneration must have been received or accrued for services that were rendered outside SA during the qualifying periods; and
- the individual must have been rendering a service for the foreign employer outside SA for at least 183 days of a consecutive 12-month period; and
- At least 60 of these days should have been continuous or unbroken.
If the individual working for an overseas employer …
- renders services permanently in SA or for less than 183 days in a foreign country, the foreign employment income earned will be taxable in full in SA; OR
- qualifies for the section 10(1)(o)(ii) exemption the amount earned above R1 250 000.00 is taxable in SA.
Who is liable to pay provisional tax?
The definition: provisional taxpayer in the Fourth Schedule of the Income Tax Act No. 58 of 1962 states:
“A ‘provisional taxpayer’ is –
- any person (other than a company) who derives income by way of-
- any remuneration from an employer that is not registered for employees’ tax purposes under paragraph 15; or…”
If an individual earns foreign employment income and the employer has no representative in SA, no PAYE will be withheld whether the individual renders services permanently in SA; less than 183 days in a foreign country OR qualifies for section 10(1)(o)(ii) exemption and earns more than R1 250 000.00 per annum.
Therefore, if the individual earns foreign employment income and no PAYE is deducted by a representative of the employer in SA, the individual must settle his / her tax liability by way of provisional tax in respect of all the individuals’ taxable income.
The due dates for the IRP6 forms to be submitted to SARS and payment to be made will be 31 August and 28/29 February of each year to prevent the levying penalties and interest. When the individual submits their tax return during SARS’s filing season the provisional tax payments will be taken into account.
If you have any queries, please do not hesitate to contact Adri Britz on firstname.lastname@example.org
Income Tax Act no. 58 of 1962
LAPD-IT-G29-PIT FAQ’s Foreign Employment Income Exemption.pdf
SARS Interpretation Note 1 (Issue 3) – Provisional Tax Estimates.