Covid-19 and tax: Changes to the foreign income exemption

by | Mar 26, 2021 | Advisory Services

Covid-19 has impacted almost every aspect of our lives, not least the manner in which we work. Fortunately, the taxman recognises this. Last week we looked at the tax benefits available for working from a home office. Now we’ll consider changes to the foreign income exemption. 

Changes to the foreign income exemption

An amendment to Section 10(1)(o)(ii) of the Income Tax Act 1962 came into effect on 1 March 2020. This exemption applies to a South African tax resident who is an employee and renders services outside South Africa on behalf of an employer (South African or foreign) for longer than 183 full days in any 12-month period as well as a continuous period exceeding 60 full days outside South Africa in the same period of 12-months.

Under the new law (provided the “days” requirements are met), only the first R1.25 million of foreign employment income earned by the tax resident will qualify for an exemption. Any foreign employment income earned over and above R1.25 million will be taxed in South Africa, applying the normal tax tables for that particular year of assessment.

Please note that the exemption does not apply to:

  • non-residents.
  • any employer in the public sector
  • a person who holds a public office to which that person was appointed under an Act of Parliament
  • independent contractors (the income they receive is not considered to be remuneration)

 Temporary relief in respect of the 2021 year of assessment

 Due to travel bans during the COVID 19 pandemic, many people could not travel in order to work outside South Africa and therefore could not qualify for the above-mentioned 183-day requirement. In light of this, the 183-days in aggregate requirement has been temporarily reduced to an aggregate of 117 days. You are still required to comply with the more than 60 consecutive days requirement in the same period that the 117 days have been met.

The amendment does not provide permanent relief and only applies to the 2021 year of assessment.

We are here to help

Tax exemptions are always complicated; even more so when a pandemic throws a spanner in the works! If you have any doubts about how the exemptions described above apply to your situation, please don’t hesitate to contact us at Sentinel International. We specialise in making complex tax matters simple for our clients.