|
A South African Resident Taxpayer, being an employee of a local or foreign company, can escape tax in respect of work undertaken offshore provided certain critical time periods are observed.
In a draft interpretation note SARS has highlighted these elements in referring to Section 10(1)(o)(ii) which exempts:-
“any form of remuneration– ii) received by or accrued to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance…, in respect of services rendered outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic—
(aa)for a period or periods exceeding 183 full days in aggregate during any period of 12 months; and
(bb) for a continuous period exceeding 60 full days during that period of 12 months”. |
SARS has furnished a succinct interpretation of the Section from which I have extracted relevant material:
| Wording |
Interpretation |
| any form of remuneration received by or accrued to any employee during any year of assessment |
The term “received by or accrued to” has its normal meaning for income tax purposes.
The term “employee” must be afforded its ordinary common law meaning, and exclude independent contractors even if such an independent contractor is treated as an employee for purposes of the Fourth Schedule to the Act. |
| by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C in respect of services rendered |
Section 10(1)(o)(ii) of the Act deals with remuneration paid or payable to an employee in respect of services rendered outside South Africa. The remuneration has, therefore, been limited to remuneration that is typically paid in respect of services rendered. Payments in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment (or right to be appointed) to any office or employment are not covered by this exemption. These payments are usually in a form of a lump sum paid to the employee by the employer as compensation for loss or variation of some right (for example, loss or variation of office). There is no causal relationship between such payment and the services rendered by the employee. |
| outside the Republic by that employee |
This literally means services rendered outside the borders of South Africa, ie not less than 200 nautical miles off the coast! |
| for or on behalf of any employer, |
“any employer” includes an employer operating outside the borders of South Africa. |
if that employee was outside the Republic —
for a period or periods exceeding 183 full days in aggregate |
“full day” means 24 hours (from 0h00 to 24h00). The 183 days do not have to be consecutive or continuous, but a total of 183 days must be exceeded. |
| during any period of 12 months; and |
The remuneration that is covered by this exemption relates to remuneration received or accrued in any year of assessment during any 12-month period.
In identifying the period of the possible 12 calendar months that may be used, it is advisable to first identify the period during which the services were rendered to the employer (employment period). A first period of 12 calendar months can then be determined by working forward 12 calendar months from the first day of the calendar month in which the first day of the employment period falls. If this period of 12 calendar months fails to meet the requirements for the exemption, another period of 12 months may be used by working back 12 calendar months from the last day of the calendar month in which the last day of the employment period falls. |
| for a continuous period exceeding 60 full days during that period of 12 months |
There must be an absence of more than 60 continuous days in the same period of 12 months mentioned above. |
| and those services were rendered during that period or periods |
The services that generated the income to be considered for exemption must have been rendered during the period or periods of exceeding 183 days and a continuous period of exceeding 60 days mentioned above. |
- What is critical to note about this exemption is that it does not apply to self-employed persons or independent contractors but only to employees! The reason for this narrow category may be the fear that the flood gates would be opened if individuals could create offshore profit centres.
- SARS leaves the decision as to whether or not PAYE is required to be deducted if the requirements are met to the employer but points out that if the employer incorrectly fails to deduct employees tax that employer would be liable for interest and penalties as well! Likewise that employer is not absolved from liability in terms of UIF or the Skills Development Levy Act which do not provide for similar exemptions!
- The definition of remuneration does not include any payments relating to termination or variation of employment i.e. you cannot end your employment career on a high note offshore with a tax-free bonus!
- The Section was also recently amended so as to provide for a twelve-month periods rather than a tax year. The effect is that even if payments are made in a later non-qualifying year of assessment they will be proportioned evenly over the twelve-month period and the non qualifying tax year and exempt for the proportions that fell within the twelve-month periods i.e. if two years are spent offshore and an amount of R90 000-00 is received during the third period of twelve-months R60 000-00 will be exempt.
- In the end result provided one is not a resident of a particular country for more than 183 days it is possible to structure ones earnings without tax consequences. Fortunately for the Receiver however most of us have family obligations which forbid any such delights!
|
