Any other year, if you worked outside of South Africa for more than 183 days in a 12-month period, you would qualify for tax exemption on your foreign income. However, 2020 is not a normal year. With the world in lockdown for a large part of the 2020 tax year, many individuals were stuck in South Africa, making it more difficult to reach that magical 183-day number.
How do I qualify for the tax exemption under usual circumstances?
Normally, South African tax residents working abroad would be entitled to a tax exemption from income earned abroad, provided that you’re physically outside of South Africa for 183 days in aggregate during any 12-month period and, during that 183-day period outside South Africa, at least 60 days must be continuously spent outside of South Africa.
Does that exemption apply to all my income?
For the 2020 tax year South Africa’s Treasury changed the tax law so that only the first R1 million you earn is exempted from tax if you meet the 183-day rule. Any income above R1.25 million would have been taxed at the relevant marginal tax rate.
But I’ve been stuck in South Africa due to the COVID travel bans and will not meet the 183-day rule criteria. What now?
Luckily, the National Treasury has considered this. In its response document to Parliament, they indicated that they are introducing changes to section 10(1)(o)(ii) of the Income Tax Act (ITA), in order to take into account the lockdown period during the COVID-19 pandemic. That change was to reduce the 183-day criteria by 66 days (the length of the level 4 and 5 lockdown). For the February 2020 to February 2021 tax year, you would only need to work outside of South Africa for more than 117 days in order to qualify for the foreign remuneration tax exemption.
That section of the ITA also mentions a criterion for 60 days of the 183 days working outside of South Africa needs to be continuous. Has that requirement changed?
No, that requirement has not changed. While the total number of days working outside of South Africa has been reduced to 117 days, the requirement for 60 of those days to be spent outside South Africa continuously has not changed, and will still need to be complied with to qualify for the foreign remuneration tax exemption.
Now that South Africa’s travel bans have all been lifted, many South African’s will be looking to return to the foreign countries where they worked before the pandemic. With the foreign remuneration exemption criteria adjusted down to 117 days, but with the requirement still in place to spend 60 continuous days working outside of South Africa, it is critical that those hoping to take advantage of this will need to get back to work as soon as possible, or face steep tax bills.
If you are leaving South Africa and not planning to come back, it would be wise to consider Financial emigration. There are a lot of advantages of Financial Emigration, get in touch with us to find out more.