With the South African 2022 filing season in full swing, we are waiting to see how SARS approaches the exemption for foreign services post the 1 March 2021 legislative changes.
As you will recall, this change in legislation was hotly contested from the time the first draft proposal was announced back in 2017. Prior to this change, South African nationals working abroad were able to claim an exemption for their total remuneration for services rendered abroad, subject to specific requirements, in particular around their time spent outside SA.
As from 1 March 2021, the exemption was amended to limit the exempt amount to R1,25M.
While it could be argued that this is a reasonable amount to exempt, when one considers that most South African are working in locations with strong currencies, once converted to ZAR this cap is easily reached. Furthermore, the concept of remuneration is extremely wide, including non-cash benefits performance bonuses and share gains. Once all these factors are considered, this cap is not very generous at all.
However not all is lost! Oftentimes employers lose sight that the tax legislation does still have a few structing opportunities up its sleeves.
One to consider is the provision of housing benefits while abroad. This exemption should not be confused with its “inbound” counterpart where an employee can be provided with accommodation in South Africa free of tax. The latter is subject to a period and rental value limitation (two years and R25 000 per month respectively), whereas the provision of accommodation to a person who is away from their usual place of residence in South Africa for work purposes is uncapped. Thus, a big potential benefit!
Another structuring opportunity to consider is the subsistence or daily allowance. SARS has been very clear that a subsistence allowance is not to be used as a structuring tool and must be paid over and above an employee’s base pay. However, when evaluating the nature of a substance allowance and what this payment is intended to compensate, i.e. living expenses, it could be argued that such a payment is, in nature, the same as a cost of living or location allowance. Both of which are common elements of an outbound employees’ compensation package.
A third and perhaps less obvious consideration is to explore the retirement options within your organization and where possible allow outbound employees to belong to an offshore retirement plan. Company contributions to offshore plans are not considered a taxable fringe benefit and the depending on the employee’s status on retirement may well also qualify for tax relief. Thus, this not only has short term but also longer terms benefits!
So still good scope for employers to tax optimise by structuring carefully. Contact us to discuss how this could help you.
Article was written by our Mobility and Employee Tax Expert, Cinzia de Risi. She has over 25 years’ experience in employees' tax and global mobility. Her passion, combined with her deep technical knowledge for advising multinational companies and their employees to optimise their mobility programmes and people tax, have been a huge benefit to both our team and clients. Cinzia also provides practical client centric and comprehensive multi-jurisdictional solutions.
Published as affiliate with Regan Van Rooy.
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