Want to stay abroad but retain employment from a South African entity, what are the tax implications for you and your employer?

A South African tax resident seconded by an employer to a foreign jurisdiction

If you are seconded by your employer to work in a foreign country, your employment income relating to the services rendered abroad will be subject to tax in South Africa. It is important to note that you may also be required to pay tax in the country where the services were rendered. To prevent double taxation, you can claim a foreign employment income exemption of up to R1.25 million if you meet certain criteria:

• Physically stay out of South Africa for at least 6 months (183 full days) during a 12-month period.
• Ensure your absence is continuous for a minimum of two months (60 days) within the six-month period.

To claim the exemption, you need to submit the following supporting documents to the South African Revenue Service (SARS):

• Employment contract and/or secondment contract.
• Proof of days spent outside the country (travel diary accompanied by stamped passport copies).
• Breakdown of income taxed in South Africa and abroad.
• Letter from the employer confirming the number of days spent in and outside South Africa.

Withholding Employees' Tax (PAYE) by RSA Employers

South African employers are required to withhold employees' tax (PAYE) from the remuneration paid to employees on behalf of SARS. However, if the employer is satisfied that you meet the requirements for the foreign employment income exemption, they may choose not to deduct employees' tax from the income related to services rendered abroad. In this case, the exemption will be noted on your tax return, and you will be required to provide evidence for the exemption.

Foreign Tax Credits and Double Tax Treaty Relief

If you have paid foreign taxes on your foreign income, you may be eligible to claim foreign tax credits from your South African normal tax liability. The credit is limited to the foreign tax payable and cannot exceed the portion of the South African normal tax attributable to the total foreign taxable income.

Additionally, if you are a tax resident of South Africa and another country, you can claim double tax treaty relief on your foreign income if there is a Double Tax Agreement (DTA) in place between South Africa and the host country. The DTA will determine where and how you must pay tax on your income.

Working abroad while retaining employment with a South African entity requires careful consideration of the tax implications for both employees and employers. If you require further assistance or clarification, you can contact us at tax.info@sng.gt.com.