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South Africa: Source of employment income, foreign workers

South Africa: Source of employment income

A recent tax court judgment reached a conclusion that is contrary to prior case law holdings that the source of employment income is located at the place where the services are rendered.


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The taxpayer was a U.S. tax resident working in South Africa for a branch of a U.S. company. The court held that the 62 days of service that the taxpayer rendered outside of South Africa during the 2014 tax year, were “consequential contractual obligations” rendered to the South African employer, and not to the individual recipients of the taxpayer’s services in other countries. The court accordingly held that the income was South African-sourced and subject to tax in South Africa.  

The grounds for the judgment included that:

  • The rendering of the services was no more than reciprocal performance by the taxpayer to a South African employer.
  • The source of the income during the 62-day period was no different from the source of the income earned for services rendered in South Africa.

The court further noted there are five factors to consider in determining the place where employment is exercised:

  • What the contract itself stipulates concerning the law governing it
  • Where the contract was concluded
  • Who is paying the employee
  • Who the services are being rendered to
  • Where the services are being rendered

KPMG observation

The tax court judgment appears to call for apportioning income for services rendered outside of South Africa. The judgment may serve as an indication of a standard that may be applied by the South African Revenue Service (SARS) in the future. In this regard, SARS has indicated that it is still evaluating the implications of the judgment, and that guidance cannot be provided with regard to the meaning of “casual and accidental” or “subsidiary and incidental” referred to in its Guide on the Taxation of Foreigners Working in South Africa (2014/15), as this will depend on the facts and circumstances of each situation.

Before apportioning the remuneration of non-resident expatriate employees to exclude the portion relating to services rendered outside of South Africa, employers need to consider various factors to determine whether these services could be regarded as incidental to the employee’s duties in South Africa and thus pay for these services will be taxable in South Africa. Having a foreign employment contract for these services will certainly work in their favour.


Read a July 2018 report [PDF 104 KB] prepared by the KPMG member firm in South Africa

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