Residence
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Tax returns and compliance
Relief for foreign taxes
General tax credits
Sample tax calculation

Broadly speaking, tax residence can be established through either physical presence or through being considered ordinarily resident in South Africa.

In terms of the physical presence test, where an individual is not ordinarily resident, they will be considered to be resident in South Africa if they are physically present in the Republic for a period exceeding 91 days during the current year of assessment as well as during each of the 5 preceding years of assessment, and they were physically present in the Republic for a period exceeding 915 days (or part-days) in aggregate during those preceding 5 years.

Where a person who became resident by virtue of physical presence in South Africa, is outside the Republic for a continuous period of 330 full days after ceasing to be physically present in the Republic, that person will be deemed not to have been resident from the day they ceased to be physically present in the Republic.

The concept of ordinarily resident is not defined in the Income Tax Act, No. 58 of 1962, as amended (the Act), and is widely held (from case law) to be the country/jurisdiction which an individual considers to be their real home, i.e. the place where their permanent place of abode is, where their belongings are stored, which they leave for temporary absences and to which they regularly return after such absences. If the taxpayer is habitually and normally resident here, apart from temporary or occasional absences of long or short duration or if they decide to settle permanently in South Africa, South Africa is recognized as being their real home and the individual will become a resident by virtue of ordinarily residence immediately.

Generally speaking, most types of remuneration and benefits received by an employee for services rendered in South Africa constitute taxable income regardless of where paid; subject to certain exceptions.

Typical items of an expatriate compensation package set out below are fully taxable unless otherwise indicated.

In most cases where the South African taxes are, by reason of tax equalization, the employer’s responsibility, the compensation should be grossed-up for the tax liability. This gross-up must account for the full tax-on-tax effect of the employer paying the taxes.

Where the employer reimburses taxes paid by the employee, these taxes are treated as a taxable benefit.

All home leave flights are taxable. This does not apply to relocation flights or flights provided for travel in conjunction with business travel.

Cost-of-living allowances are fully taxable in South Africa.

For purposes of determining the value of the taxable benefit relating to employer-provided accommodation, no rental value is placed on any accommodation provided by an employer to an employee while they are away from their usual place of residence outside of South Africa, provided:

• the employee was physically present in South Africa:
  • for a period of less than 90 days during that tax year; or
  • for a period not exceeding 2 years from their date of arrival for purposes of performing their employment duties.

The concession above is limited to 25,000 South African rand (ZAR) per month during which the accommodation was provided during the tax year, for up to 2 years. This provision will only apply if that employee was not present in South Africa for a period exceeding 90 days during the tax year immediately preceding the date of arrival in South Africa.

If the aforementioned conditions are not satisfied the accommodation provided to an employee by their employer is fully taxable in South Africa. The value of the taxable benefit will be, where the accommodation is obtained by the employer in terms of an arm’s length rental agreement, the lower of the actual cost incurred by the company, less any consideration paid by the employee, or the result of a remuneration based formula. The application of the formula or the rental value is dependent on various factors and should be evaluated on a case-by-case basis.

Where the accommodation is owned by the employer, the remuneration-based formula must be used to determine the rental value.

The legislation does not provide for an apportionment where employees share accommodation. However, the Commissioner for SARS has discretion to reduce the rental of accommodation if, by reason of the situation, nature or condition of the accommodation or any other factor, the value determined in accordance with the legislation is not fair and reasonable.

Benefits-in-kind generally form part of taxable compensation. Right of use of a company vehicle:

The monthly taxable value determined value (the cash cost including VAT) per month of each vehicle, where the vehicle is

• subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3,25 percent of the determined value; or
• acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.

80 percent of the taxable benefit will be subject to PAYE on a monthly basis. The percentage is reduced to 20 percent if the employer is satisfied that at least 80 percent of the use of the motor vehicle for the tax year will be for business purposes.

The taxable value may be reduced on assessment of the employee’s income tax return in accordance with the ratio of business kilometers travelled to total kilometers travelled.

Further relief is available for the cost of license , insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and the number of private kilometers travelled is substantiated by a log book.

Employer contributions to Medical Aid

Employer contributions to an approved South African medical aid fund, or to any fund which is registered under any similar provision contained in the laws of any other country/jurisdiction where the medical scheme is registered, will be taxable. Employer contributions to a foreign medical scheme, which are not paid to a fund as described above, will be regarded as a taxable benefit where the employee acquires the right to have those contributions made by their employer in terms of their contractual arrangements. If the employee is a non-resident for South African tax purposes, these contributions will be taxable in South Africa to the extent that they are regarded as South African sourced income. Furthermore, any employee contributions, which the employer takes over, will be taxable.

With effect from the 2018 South African tax year, taxpayers under the age of 65 years may deduct from their tax liability a tax credit of ZAR319 per month for the first two beneficiaries and ZAR215 per month for each additional beneficiary, in respect of medical aid contributions made by themselves or their employer to an approved South African medical aid fund or any fund which is registered under any similar provision contained in the laws of any other country/jurisdiction where such medical scheme is registered.

Tax services provided to employees

A 2019 judgment by the South African Supreme Court of Appeal has found that tax services provided to expatriate employees constitute a taxable fringe benefit and should accordingly be taxed in the hands of the employee.

Intra-group statutory directors
 

Will a non-resident of South Africa who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in UK) trigger a personal tax liability in South Africa, even though no separate director's fee/remuneration is paid for their duties as a board member?

Directors' fees derived by non-resident directors will be subject to tax in the country/jurisdiction where the head office of the company is situated, irrespective of the place where the director is a resident or where services where services were performed.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in South Africa?

Article 16 of the Convention provides that: "Directors' fees and other similar payments derived by a resident of a Contracting State in their capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State."

Taxing rights in respect of director's fees would be awarded to the country/jurisdiction in which the company is a tax resident irrespective of where the director is tax resident or where they render the relevant services.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in South Africa (i.e. as a general management fee where the duties rendered as a board member is included)?

An apportionment would be required to distinguish between directors’ fees, which is the compensation paid to the director as a result of their capacity as a director and remuneration received for services rendered for the company in capacity other than a director. Directors’ fees would be taxable in the country/jurisdiction in which the company is resident. Any other compensation received for duties performed by the director would be taxable in terms of the general source rules in South Africa with regards to services income which is that income will be regarded as derived from a South African source if the services to which the income relates are rendered in South Africa.

We note that non-executive directors may, in addition to income tax, be liable to register and account for Value Added Tax on directors’ fees received

c) In the case that a tax liability is triggered, how will the taxable income be determined?

The full value of the directors’ fees for the performance of directors’ duties at a South African company will be subject to tax.

Prior to 1 March 2016, it was permitted for employers, instead of covering specified expenses, to pay a tax-free relocation allowance of up to one month’s basic salary, to cover an employee’s settling-in costs.

As from 1 March 2016, any such allowance would have to be treated as taxable. The employer would only be able to claim the exemption in respect of certain expenses (refer to the list hereunder), and only if proof of expenditure is available.

The following items of expenditure qualify:

• Bond registration and legal fees paid in respect of a new residence that has been purchased;
• Transfer duty paid in respect of the new residence;
• Cancellation fees paid for bond cancellation on previous residence;
• Agent’s commission paid on sale of previous residence;
• New school uniforms;
• Replacement of curtains;
• Motor vehicle registration fees; and
• Telephone, water and electricity connections.

There are no special tax concessions for expatriates. However, assuming the foreign national is not a South African tax resident, non-South African-sourced employment income, investment income and capital gains (excluding gains derived from the disposal of immovable property held in South Africa) will not be subject to tax.

To the extent that a non-resident individual renders services outside of South Africa, the remuneration attributable to the time worked abroad would not be taxable in South Africa, as it would not be sourced in South Africa. This apportionment will usually be done on the basis of days spent working inside and outside South Africa. It is however our recommendation that the requirement for the individual to render services abroad be detailed in a contract of employment – if subject to Audit, SARS will ask for the contract and expect to see this specifically stated in the contract.

With regards to resident individuals, prior to 1 March 2020 foreign sourced employment income could be exempted subject to certain conditions, namely that services were rendered abroad for more than 183 full days in any rolling12-month period, including more than 60 continuous full days.

From 1 March 2020, South African tax residents who spend more than 183 days in employment outside the country/jurisdiction will be subject to South African taxation on foreign sourced employment income that exceeds R1.25 million. Relief can be provided by claiming foreign tax credits (in terms of section 6quat of the Income Tax Act) in respect of taxes paid in the foreign country/jurisdiction relating to the foreign employment income in excess of R1.25 million.

We encourage South African residents working abroad to contact a tax advisor to discuss the options available to reduce the impact of the legislative changes.

Non-residents are taxable on South African-sourced investment income and on capital gains derived in respect of immovable property held in South Africa. South African residents are generally fully taxable on worldwide income and capital gains.

With respect to rental income, deductions are allowed for interest, rates, taxes, levies and other related expenses.

In broad terms, taxable capital gains are computed by taking the disposal or deemed disposal proceeds and deducting the base cost of the asset. Forty percent of the gain will be included in taxable income and taxed at the individual’s marginal tax rate (i.e. a top income tax rate of 45 percent would result in an effective rate of CGT of 18 percent). An annual exclusion of ZAR40,000 per year is available.

The deadlines for submission of individual income tax returns for the 2021 tax year are as follows:

• Electronic submission deadline for non-provisional taxpayers: between October and December 2020 (date to be confirmed by the Minister of Finance).
• Electronic submission deadline for provisional taxpayers: end of January 2021.

Please note the deadlines are still to be confirmed by the tax authorities.

SARS will assess the return and notify the taxpayer of any taxes outstanding or refund due. Tax is due by the date specified on the assessment, typically 30 days from the date on which the assessment is issued, for non-provisional taxpayers. Provisional taxpayers with assessed tax liabilities will be subject to interest and potential penalties.

Late submission of an income tax return will attract an administrative non-compliance penalty.

Foreign tax credit relief for South African tax residents is typically granted in terms of domestic provisions (section 6quat). Alternatively, relief can be granted in terms of a Double Taxation Agreement (DTA).

As mentioned above, with effect from the 2021 South African tax year, a taxpayer may deduct from their tax liability a tax credit of ZAR319 per month for the first two beneficiaries and R 215 for each additional beneficiary, in respect of medical aid contributions to qualifying medical aid schemes.

This calculation assumes a married taxpayer non-resident in South Africa with two children whose 3-year assignment begins 1 March 2017 and ends 29 February 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.

Exchange rate used for calculation: USD1.00 = ZAR16.00

• All earned income is attributable to local sources.
• Bonuses are paid at the end of each tax year and accrue evenly throughout the year.
• The company car is used for business and private purposes and the “determined value” for tax purposes is USD50,000 (including VAT). The company car has a maintenance plan.
• Assumes that the assignee does not maintain a logbook and mainly undertakes private travel using the company provided vehicle.
• The employee is non-resident throughout the assignment.
• Tax treaties and totalization agreements are ignored for the purpose of this calculation (no Totalization Agreements with South Africa exist in any case).

Calculation of taxable income