The foreign income exemption is a rule that exempts part of a South African tax resident's foreign-employment income from tax, provided they meet the time requirements for working outside the country. Section 10(1)(o)(ii) of the Income Tax Act sets it out.
What it means
A resident remains taxable in South Africa on worldwide income, which would otherwise include pay earned abroad. The exemption relieves qualifying foreign-employment income up to an annual cap, where the employee spent enough days outside the country in a 12-month period. Income above the cap stays taxable.
Where it fits in
The exemption depends on tax residency and on meeting the day-count test, and it feeds into how PAYE is withheld on the relevant pay. Where it applies, payroll reduces the income brought into the PAYE calculation; a SARS directive can confirm the treatment so the employer withholds correctly.
Key rules
- Exempts qualifying foreign-employment income of a tax resident, up to a yearly cap.
- Requires meeting the days-outside-South-Africa test over a 12-month period.
- Income above the cap remains fully taxable.
- A directive can confirm the PAYE treatment for the employer.
