Tax on earnings while working abroad

A Fin24 user is going to work abroad for a year and is not sure how he will be taxed upon his return to SA. He writes:

I am a South African resident relocating to Saudi Arabia for a period of one year, as I have been offered a one-year contract.

I will be commencing work in Saudi in January 2015 and plans on visiting South Africa in July 2015.

I would like to find out if my earnings will be taxed once I return to South Africa?

Pieter Faber, technical executive: tax law & policy at the SA Institute of Tax Professionals (Sait), responds:

If you are an SA tax resident your worldwide income remains taxable in SA.

However, section 10(1)(o)(ii) of the Income Tax Act provides for a tax exemption for remuneration - such as a salary, wage, bonus or commission - earned by an employee in respect of services rendered outside South Africa for any employer in terms of his or her employment contract.

All the remuneration that the employee earns outside South Africa during that period will only be exempt if the employee is outside South Africa for a period exceeding 183 days, of which 60 days must have been continuous, during any 12 months period.

This 12 month period is, therefore, not a calendar or tax year and can apply over two separate tax years, exempting the income earned from the foreign employment for parts of these years if over the 12 month period the requirements are met.

This exemption will not apply in respect of employment income earned while in South Africa and also does not apply to other forms of income such as interest received or rental income from leasing property.

As you begin your foreign employment in January 2015, on qualification the exemption will apply over two tax years.

For example: by the end of June 2015 (assuming you were out SA from January 1 2015 continuously) you would then qualify for the exemption of the income earned from January 1 2015 to June 30 2015.

When you complete your 2015 tax year return (to be submitted usually from July 2015), the income for January and February 2015 will be exempt.

The remaining income earned while you were rendering foreign services will fall within the 2016 tax year and will be completed in that return (that is March 2015 to December 2015).

Please remember to keep important documentation such as copies of your passport, employment contract and payslips so that you can prove your foreign employment income to Sars as well as the periods you were outside SA.

If you are to receive your salary in a foreign currency like US dollars, then you can determine the rand value for the purposes of your tax return in terms of section 25D of the Income Tax Act by using either the spot rate (that is the exchange rate on the date of accrual or receipt) or the weighted average rate for the year.

Sars' interpretation note 16 provides more details on the requirements and provides examples of how the exemption should be applied, including the 12 month period where the qualifying exemption days of 183 and 60 are over two separate tax years. Here is the link.

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