Many South Africans earn income from foreign sources, whether through employment, dividends, rental income, interest, or royalties. A common question is whether this income is taxable in South Africa and if it needs to be declared in a tax return. The simple answer is yes—foreign income is subject to taxation in South Africa.

South Africa’s Tax System and Foreign Income

South Africa follows a worldwide taxation system, meaning that residents are taxed on their global income, irrespective of where it is earned. If you are a South African tax resident—holding a South African passport and considering the country as your primary place of residence—you are required to declare all income earned, both locally and internationally.

You can incur different types of foreign income namely:

• Foreign employment income
• Foreign dividends & interest income
• Foreign rental income
• Foreign trade income
• Foreign royalties

Below we will outline the tax rules and exemptions on foreign employment income.

Tax Exemption on Foreign Employment Income 

Even if your income is earned in another country, South Africa’s tax system generally requires you to declare and pay tax on it. However, Section 10 of the Income Tax Act provides an exemption for certain foreign-earned income.

From 1 March 2020, a portion of foreign employment income is tax-free, capped at R1.25 million per annum.

If you qualify under certain conditions, part of your foreign income may be exempt from taxation in South Africa.

When Is Foreign Income Exempt?

To qualify for tax exemption on a portion of your foreign income, you must meet the following conditions:

• Have a formal employment contract (with either a local or foreign employer).
• Be a South African tax resident.
• Earn a specific type of remuneration.
• Spend at least 183 days (about 6 months) outside South Africa in any consecutive 12-month period.
• At least 60 of these days must be continuous (unbroken stay abroad).

Understanding the 183-Day / 60-Day Rule

This rule is often misunderstood. Here’s how it works:

• The 183 days include all calendar days spent outside South Africa, including weekends, public holidays, leave, and sick days.
• The 12-month period is not necessarily a calendar or financial year; it can be any rolling 12-month timeframe.
• If you fail to meet the test using the start date of your employment period, you can also calculate it backwards from the end date.

How SARS Calculates the Tax-Free Portion of Foreign Income

The tax-free portion of your foreign income is based on the proportion of time spent working abroad. SARS uses this formula:

(Working days outside SA / Total working days) × Remuneration received

Final Thoughts

If you are earning foreign income as a South African tax resident, it is crucial to understand your tax obligations and the potential exemptions. Keeping accurate records of your time spent abroad and remuneration received is essential to ensure compliance with SARS regulations.

If you’re unsure about your tax liability on foreign income, consulting a tax professional can help you navigate the complexities and ensure you’re not overpaying tax on your earnings. You can reach out to one of the professionals at Meyerrens Accountants for expert guidance and assistance.