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South Africa: Foreign remuneration exemption cap to be increased

South Africa: Foreign remuneration exemption cap

The budget for 2020-2021 includes a measure that the foreign remuneration exemption would be increased from R1 million to R1.25 million per year from 1 March 2020.

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Under the new system proposed by the budget measures, emigrants and residents who are natural persons would be treated identically. Additional restrictions on emigrants, such as the requirement to only operate blocked accounts, would be repealed. The intention is to allow individuals working abroad more flexibility provided that they are in good standing with the South African Revenue Service and funds are legitimately sourced. However, individuals who wish to transfer more than R10 million offshore would be subjected to a more stringent verification process. Also, the practice of allowing individuals to withdraw funds from their pension preservation fund, provident preservation fund, and retirement annuity fund upon emigrating for exchange control purposes would be reviewed. Any resulting amendments would be effective 1 March 2021.

Reason for change

Since the announcement of the changes to the foreign remuneration exemption in July 2017, South African tax residents working abroad have sought advice on ways in which they can minimise the impact of the amendment on their disposable income. In many instances, employment contracts have been negotiated on the basis that employees will not be liable for tax in South Africa on their employment income for foreign services. Many have incorrectly concluded that breaking ties with South Africa through emigration is the only viable option for them to meet their objective of breaking South African tax residency. In order to stem the tide of emigrations, National Treasury has decided to take measures to encourage South Africans to maintain ties with South Africa by increasing the remuneration exemption to R1.25 million and phasing out the concept of emigration.

Read a February 2020 report [PDF 381 KB] prepared by the KPMG member firm in South Africa

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