South Africa | Foreign Employment Exemption

The Foreign Employment Tax Exemption applies to South African tax residents working outside South Africa for a period exceeding 60 continuous days and for a period exceeding 183 full days in aggregate, during any 12 months. Previously, there was no limit on the exemption, but from March 2020, the exemption is limited to R1 250 000 per tax year.

 

The exemption remains an assessment determination by SARS, where SARS will determine whether the exemption is allowable when processing the ITR12 return submitted to SARS by the employee, based on the information provided in the ITR12 return together with the IRP5/IT3(a) certificate information submitted by the employer.

A new Note component called "Foreign Employment Tax Exemption " (tax code: 4587) has been added to account for the tax exemption. The YTD value advised on this component should reduce the Total YTD Regular Earnings on the tax calculation. To the extent that the value exceeds the amount on the Total YTD Regular Earnings on the tax calculation and there are YTD Bonus Earnings, the balance should reduce Total Bonus Earnings on the tax calculation.

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It is important to note that the potential that an employee may qualify for the exemption does not automatically waive the obligation of an employer to deduct and pay PAYE. Where an employer is satisfied that the exemption will apply, the employer may choose not to deduct and pay PAYE. However, where the exemption is not allowed when the ITR12 of the employee is processed, the employer will be liable for the PAYE not deducted as well as the concomitant penalties and interest.

Employers are therefore strongly cautioned against applying the exemption unless they are absolutely certain that the employee and the remuneration has met the qualifying criteria of the exemption.

 

The following scenarios will generate error messages:

If the YTD amount captured on this component exceeds R1 250 000

      Error: YTD amount on "Foreign Employment Exemption" component cannot exceed R1 250 000.

If the YTD amount exceeds the sum of Total YTD Regular Earnings + Total Bonus Earnings on the tax calculation

      Error: YTD amount on "Foreign Employment Exemption" cannot exceed the sum of "Total YTD Regular Earnings" + "Total YTD Bonus Earnings".

If this note component is added and the employee is not linked to the "Foreign Employment " tax status

      Error: Foreign Employment Exemption can only be added if tax status is "Foreign Employment".

 

The above information is based on Section 10 (1)(o)(ii) of the Income Tax Act.

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