Lately, as more South Africans move abroad to work for foreign companies, it often happens that as their spouses resign in South Africa their employer asks them to still work for them while abroad.
The question then arises: “Should the employee still be taxed in South Africa?” Another question is how is the employee going to be paid, in South Africa or abroad?
The employer should stop taxing the employee if it is obvious that the employee will be in South Africa less than 183 days in any 12 month period. Section 10(1)(o)(ii) exempts any remuneration received by or accrued to a person by way of any salary, leave pay, wage, overtime, bonus, gratuity, commission, and fees if it is in respect of services rendered outside the Republic of South Africa for or on behalf of any employer provided that person was outside the Republic of South Africa –
- For a period or periods exceeding 183 full days in aggregate during any 12-month period commencing or ending during that or any other year of assessment; and
- For a continuous period exceeding 60 full days during such period of 12 months (this could be part of the 183 days abroad); and
- Such services were rendered during such periods worked outside the Republic.
- The remuneration referred to in this subsection includes fringe benefits and benefits under employee share schemes.
The payment must relate to employment. Independent contractors (self-employed persons) may not claim the exemption. The payment does not have to be received during the year that the employee was outside the Republic. It must merely relate to the work done outside of South Africa.
It is very important that the employer uses the correct codes for the employee to get the exemption. The salary code for services rendered in South Africa is 3601. If the employee works abroad, the employer needs to use code 3651. The remuneration from the foreign employment must be reflected under the relevant code on the taxpayer’s IRP5 certificate. It must be declared in the relevant section of the taxpayer’s income tax return that deals with income considered not to be taxable. The IRP5 code for this non-taxable income is 3651. If the IRP5 code is incorrect, the taxpayer will experience difficulties in claiming this exempted income.
What quite often happens is that the employer pays the employee in their South African bank account and the employee then has to use part of their R1 million annual travel allowance to get money abroad. The employee could have a new contract with the employer as independent contractor once working abroad. The employee must then issue an invoice every month and the employer will then be able to pay the employee directly abroad.
You are welcome to contact Fanus Jonck, a South African tax consultant, regarding any tax queries you might have (tax@jonck.net).
