All South African tax residents regardless of where the taxpayer is based are required to declare their worldwide income unto SARS by way of submitting an annual income tax return.
Remuneration earned from services rendered outside South Africa can qualify as exempt income under Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962.
Section 10(1)(o)(ii) of the Act declares the following to be exempt from income tax:
“any remuneration as defined in paragraph 1 of the Fourth Schedule (ii) received by or accrued to any person during any year of assessment in respect of services rendered outside the Republic by that person for or on behalf of any employer, if that person was outside the Republic for
period or periods exceeding 183 full days in aggregate during any 12 month period commencing or ending during that year of assessment; and
for a continuous period exceeding 60 full days during that period of 12 months.”
It is important to note that the 12 month period is not necessarily a year of assessment, a calendar year or a financial year. The 12 month period can be any 12 month period commencing or ending within the applicable tax year. Each month in the 12 month period, is a month as defined in the interpretation Act, 1957 i.e. a calendar month. The period must therefore commence on the first day of a particular month and end on the last day of the twelfth calendar month thereafter.
Weekends, public holidays, vacation and sick leave spent outside of the Republic are considered to be part of the days during which services were rendered therefore they are considered to be a part of the 183 day and 60 day period outside of South Africa to qualify for the exemption.
The potential for an exemption under Section 10(1)(o)(ii) of the Act does not automatically waive the liability of an employer to deduct employees’ tax in terms of the Fourth Schedule to the Act. An employer that is satisfied that the provisions of Section 10(1)(o)(ii) will apply in a particular case may however, elect not to deduct employees’ tax in a particular case. Where it is found that the exemption was not applicable the employer would be held liable for the employees’ tax not deducted as well as the concomitant interest and penalties.
When a Section 10(1)(o)(ii) exemption is claimed after the tax return has been filed, SARS can request supporting documentation to support the claim and prove the taxpayer’s absence from the Republic. Supporting documentation may include employment contracts, secondment letters and copies of passports.
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