011 463 5566 tonyd@harding.co.za

The s 10(1)(o)(ii) exemption for foreign employment income of tax residents was originally proposed to be limited to R1 million, with effect as from 1 March 2020. This will be increased to R1,25 million, according to Chapter 4 of the Budget Review, published along with the Budget speech on 26 February 2020. Any excess balance will be subject to normal tax, but with relief under a tax treaty (if one exists) effected through the mechanism of s 6quat of the Income Tax Act (199 TSH 2019). The existing requirement, namely 183 days absence from the RSA, of which 60 days are continuous, must still be satisfied.


Chapter 4 includes this entry:
Some advisors have recommended emigration, as recognized by the Reserve Bank, as a way to break tax residency. However, this is only one factor considered by SARS. Government wants to encourage all South Africans working abroad to maintain their ties to the country. Consequently, this concept of emigration will be phased out by 1 March 2021.

Annexure E to the Budget Review provides an overview of the revised emigration process with a focus on the tax aspects stated as follows:

Following reforms to the income tax treatment of South African tax residents who receive remuneration outside the country, government proposes to remove the exchange control treatment for individuals, while strengthening the tax treatment. The intention is to allow individuals who work abroad more flexibility, provided funds are legitimately sourced and the individual is in good standing with the South African Revenue Service. Individuals who transfer more than R10 million offshore will be subjected to a more stringent verification process. Such transfers will also trigger a risk management test that will include certification of tax status and the source of funds, and assurance that the individual complies with anti-money laundering and countering terror financing requirements prescribed in the Financial Intelligence Centre Act (2001). This will be phased in by 1 March 2021.

Under the new system, natural person emigrants and natural person residents will be treated identically. Additional restrictions on emigrants—such as the restrictions on emigrants being allowed to invest, and the requirement to only operate blocked accounts, have bank accounts and borrow in South Africa—have been repealed. The concept of emigration as recognized by the Reserve Bank will be phased out, to be replaced by a verification process based on the requirements above. Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests as set out in the Income Tax Act (1962). Under existing international standards, South Africa participates in the automatic sharing of information between tax authorities on individuals’ financial accounts and investments. These co-operative practices will remain in place to ensure that South African tax residents who have offshore income and investments pay the appropriate level of tax.

In 200 TSH 2019 I cautioned that the SARB emigration process must not be conflated with a stand-alone change of tax status. The proposed rationalization should help address and simplify the issue.