Earning Income from Abroad as a South African Resident

Simónne Roodt
Jul 16
5 min read

It happens more often that we hear of friends or family who get a job opportunity abroad, whether it be temporary or permanent. With all the planning and VISA applications and residency permits, etc, one rarely stops to think about the tax implications of such a decision in South Africa and only focuses on the future and the tax implications in the new country.

Although it might not make sense to most people, it is unfortunately the regulations stipulated by law that SARS works on a World Wide Tax system, which means that you have to pay tax in South Africa on income earned from both local and foreign sources. There are, however, a few tax reliefs provided which need to be considered and applied for/filed correctly.

Firstly, a test needs to be done to determine whether you are a South African resident for tax purposes. There are 2 tests that apply to determine this:

Ordinarily Residence Test

This basically means that South Africa is the country to which you would return to from your wanderings as your usual place of residence. Certain factors are taken into account with this test, such as:

Where does the rest of your immediate family reside
Do you have a permanent residence permit in a foreign country?
Are you registered for tax in the foreign country?
Do you have a long-term employment contract with a foreign company which requires you to work in a foreign country?
Where are your belongings stored?
Which assets do you own in South Africa?
Where are you registered for your social, educational or sports activities, such as a church, gym, sports clubs, school, etc.

If most of these answers point back to South Africa, it would be clear that your stay abroad is only temporary, and you intend to return to South Africa, which would mean that you are still seen as a South African resident for tax purposes.

In the case that you do not qualify as a South African resident based on the ordinarily residence test, one needs to apply the physical presence test.

Physical Presence Test

If an individual is physically present in South Africa for the below stipulated periods (all 3 need to be met), then he/she would be considered a resident in South Africa for tax purposes:

More than 91 days physically present in South Africa during the year of assessment under consideration
More than 91 days physically present in South Africa during each of the five years preceding the year of assessment under consideration
More than 915 days in total during those five preceding years of assessment

In addition, any individual who meets the physical presence test but is outside South Africa for a continuous period of at least 330 full days will not be regarded as a resident from the day on which that individual ceased to be physically present.

Should you not qualify as a resident on either of the two above-mentioned tests, then you will qualify as a non-resident in South Africa for tax purposes. Very important – This needs to be declared to SARS. SARS does not automatically become aware of your residency status. You need to apply for E-filing to SARS to change your tax status from resident to non-resident; otherwise, you will remain a resident and have to declare both your South African and foreign income on your tax returns.

What does it mean to be a non-resident:

You are exempted from having to declare your foreign income to SARS and pay any taxes thereon. The only reason you would still submit your income tax returns to SARS is if you earn any South African-sourced income, including interest, rent, consulting fees, retirement annuity, etc. If you have no ties to South Africa from an income point of view, you will not have any obligation to keep submitting your tax returns annually to SARS.

Many people believe one then needs to financially emigrate as well. Financial emigration is a fairly complicated and costly process, which I recommend to very few people. SARS has recently announced that one can withdraw your retirement annuity fund/pension fund before the age of 55 if you have been financially emigrated for a period longer than 3 years. Should you wish to proceed with this option, then you would of course need to proceed with the financial emigration process. This is also done on e-filing, and once the process is approved, SARS issues you with a Tax Pin, which is then provided to your financial institution to assist with the withdrawal process.

What tax relief options do I have as a RESIDENT in South Africa working abroad?

Section 10(1)(o)(ii) applies to a South African tax resident who renders services abroad for a period of more than 183 days within a 12-month period, of which more than 60 days are consecutive.

Up to February 2020, if you meet the above requirements, the total amount earned would be exempt from tax in South Africa. From 1 March 2020, however, only the first R1,250,000 is exempt from tax in South Africa – The exceeding amount will still be eligible for tax in South Africa on the normal income tax brackets as any South African-sourced income.

Furthermore, section 6quat allows for a foreign tax credit. This reduces your tax bill in South Africa, with the taxes already paid abroad. Please note that the tax credit is used as a rebate, meaning that it can only reduce your tax liability to SARS and not create a tax refund from SARS, as these taxes were never paid to SARS but instead to the foreign tax authorities. Also note that this foreign tax credit is limited to the taxable portion of the foreign income earned. If R1,25mil from your total income earned abroad is exempt, the same portion of your taxes paid abroad may not be used to decrease your tax amount in South Africa.

Let’s use a practical example:

John works on a farm in America from January to September (9 months, 273 days). He earns a total of R3,500,000, on which he paid taxes of R500,000 in America. After his 9 months abroad, he returns to South Africa indefinitely. John hence qualifies as a tax resident for tax purposes and he also qualifies for the Section 10(1)(o)(ii) exemption of R1,25mil, as well as the Section 6quat foreign tax credit.

His calculation on his income tax return would be as follows:

Taxable income: R3,500,000 – R1,250,000 = R2,250,000

Tax calculated on taxable income:

(((R2,250,000 – R1,817,000) * 45%) + R644,489) – R17,235 = R822,104

Foreign tax credit: R2,250,000 / R3,500,000 = 64,29%

64.29% * R500,000 = R321,450

Tax payable: R822,104 – R321,450 = R500,654

I hope you enjoyed the article and that it has cleared up any uncertainties. Please do not hesitate to reach out for any assistance or further guidance on the matter.

Best regards,