I have received a lot of queries recently from expats asking whether income they are earning while working overseas, is taxable in South Africa. 

Tax queries are, unfortunately, never easy to answer. There are a lot of tax principles that are subjective in nature and depend on the intention of the taxpayer. An investigation into the mind of the taxpayer is therefore inevitable and a series of questions would need to be answered before arriving to a conclusion. 

To try and answer the question as to whether income earned by expats are taxable in South Africa, there are a few basic tests which are applied. 

From a South African perspective, a residence base tax system is applied. This means that world-wide income received from South African residents are taxable in South Africa, no matter how or where the income was sourced. This means that we will have to determine whether the expat is considered to be resident in South Africa. We apply two tests to determine this: the ordinary residence test and the physical presence test. 

The ordinary residence test is a question of fact which needs to be answered on a case by case basis. The crux of the test is to determine whether there is a settled and enduring connection between person and place. SARS has accepted that ordinary residence pertains to the place “where in the settled routine of his life he regularly, normally or customarily lives”. In the event that an expat does not satisfy the ordinary residence test, the physical presence test is applied. The physical presence test deems a person to be resident in South Africa in the event that such person has spent more than a certain number of days in South Africa over a period of six years. Should both tests be answered in the negative, the income earned by the expat will not be taxable in South Africa.

In the event that the expat satisfies the aforementioned tests, there are still exemptions that apply. Section 10(1)(o)(ii) of the Income Tax Act exempts, from the gross income of a taxpayer, any remuneration received by or accrued to any person in respect of services rendered outside the Republic of South Africa for or on behalf of any employer, provided that such person was outside South Africa and that person complies with the necessary provisions contained in section 10(1)(o)(ii) of the Income Tax Act. It is, however, important to note that as from 01 March 2020 the exemption will be limited to the first R1,000,000.00 (ONE MILLION RAND), after which such remuneration becomes taxable in South Africa.

There are many considerations that need to be taken into account when considering tax queries. The content of this blog should not be considered in isolation. Please feel free to contact us should you have any queries.