By Amanda Visser
Many South Africans who have been repatriated to South Africa and found themselves being impacted by the continued travel bans will no longer meet the requirements for tax exemption on foreign income.
South African residents working abroad have been able to apply for the exemption on foreign income if they spent more than 183 days during any twelve-month period outside South Africa, providing 60 of those 183 days were continuous. Before 1 March 2020, this exemption applied to the entire remuneration earned from the foreign services rendered. However, as of 1 March 2020, this exemption is limited to a maximum of R1,25 million per annum.
Due to the global outbreak of the coronavirus and consequent travel restrictions, many South African expats have overstayed the periods in South Africa. This means while they were working remotely from South Africa, their earnings will be regarded as South African sourced, giving South Africa the right of taxation.
Numerous submissions to the South African government led to a concession where the required 183 days were reduced by 66 in correlation with the number of days that the country was in lockdown level 5. Gabrie Combrinck, Senior Manager at Ernst & Young Advisory Services, says despite South African expats only having to spend 117 days outside the country in any 12-month period for the 2021 year of assessment, 60 of those days must still be consecutive.
Combrinck notes that the host country (where the South African normally works) may also withhold tax on the income paid for the work done. “This, regardless of whether the assignment (host) country still enjoys the right of taxation in the application of a double tax agreement (with South Africa),” he says.
“The outcome of this conundrum is ultimately double taxation. Neither jurisdiction, neither South Africa nor the assignment country, may have domestic legislation to support the elimination of double tax.”
Comrinck notes that according to COVID-19 guidelines published by the Organisation for Economic Co-operation and Development (OECD), a country that loses its taxing rights in terms of the double tax agreement should suspend the withholding of taxes, or the tax withheld should be refunded to the employee. However, many countries in Africa are not adhering to the double tax agreements with South Africa.
“Exceptional circumstances call for an exceptional level of coordination between jurisdictions to comply with double tax agreements. Both jurisdictions should mitigate the administrative costs associated with the involuntary and temporary change of the place where employment is performed for employees and employers,” says Combrinck.
The South African Institute of Tax Professionals (SAIT) and the South African Institute of Chartered Accountants (SAICA) made submissions to National Treasury to address these issues.
SAICA raised concern about the requirement that 60 of the 183 days outside South Africa must be continuous. “Many will not be able to meet the requirement within the next 12-month cycle since the lockdown has been going on for more than 200 days,” it wrote in its submission at the end of last year. SAICA suggested that the entire travel restriction period, starting on the day the other country announced restrictions, must be considered an addition to the 12-month cycle.
SAIT proposed that the 66-day period be included as a minimum with no burden of proof required. If individuals can prove that they could not travel to another country, the entire travel restriction period must be considered.
Despite submissions by industry bodies, there is currently little recourse for South African expats facing double taxation. Combrinck says during meetings with treasury, the response from the representatives was that this had to be dealt with as a COVID-concession.
Beatrie Gouws, Head of Stakeholder Management and Strategic Development at SAIT, says they are aware of the instances of double taxation where a form of employees’ tax have been withheld, and they are engaging with the South African Revenue Service (SARS) on the matter.
