SA Budget 2019/20 – Double taxation relief for South African employees working abroad

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South African tax residents are taxed on their worldwide income, meaning that where such a person works abroad and is remunerated, this is caught in the South African tax net. If such a person works for a South African employer, an employees tax withholding obligation exists for the employer regarding the income that resident earns for services rendered while physically abroad.

In the Taxation Laws Amendment Act, No 17 of 2017, amendments to s10(1)(o) will go into effect from 1 March 2020. These amendments limit the exemption available under this section to income up R1 million earned by a South African taxpayer while working abroad.

Prior to the amendment taking effect all remuneration earned by South African taxpayers that qualified for the exemption under s10(1)(o) was exempt from income tax, meaning that in certain cases, no employees tax withholding obligation would arise. However, from 1 March 2020, where an employee earns more than R1 million in a 12-month period, employees tax must be withheld for any further income beyond the R1 million threshold.

However, the country where the employee is deployed may also impose an employees tax withholding obligation on the same income. Meaning that the same income would be subject to two withholding obligations, a classic example of double taxation.

The Budget therefore proposes that a provision be inserted into the IT Act, which would allow employers to reduce their amount withheld monthly for employees tax by the amount of any foreign employees tax withholding that applies to that income. This amendment is subject to a workshopping exercise by National Treasury and will be refined through the 2019 legislative cycle. The first workshop in this regard is scheduled to take place on 6 March 2019.

This amendment will provide vital relief for employees who work abroad, especially from a cash-flow perspective, given the increased tax burden they will face from March 2020. It also ensures that where an employee works in a country which has not concluded a double taxation agreement with South Africa, that they are not subject to double taxation.

Authors: Tsangadzaome Mukumba and Louis Botha – Special Edition Budget Speech Alert 2019.