School of Accountancy (ETDs)
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Item A critical evaluation and comparative study on section 10(1)(o)(ii) foreign employment exemption(University of the Witwatersrand, Johannesburg, 2022) Margolius, Caryn; Kolitz, MaeveIn 2001, South Africa changed to a residence-based system of taxation to align with international best practice and to limit the opportunities for tax arbitrage (Manuel, 2000, 36.). Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (the Act) was amended to exempt foreign employment income of a resident if the resident was outside his or her country of residence for a period exceeding 183 days (National Treasury, 2000, 5). National Treasury cautioned against this exemption and in the Explanatory Memorandum on the Revenue Laws Amendment Bill, 2000 it was stated, The effect of the relief measure will be monitored to determine whether certain categories of employees abuse it to earn foreign employment income without foreign taxation. The main purpose of the exemption was to prevent double taxation from occurring, considering the limited number of double taxation agreements concluded between South Africa and other countries at the time (Mzizi, 2017, 10). The exemption created an opportunity for double non-taxation where the source country imposes little or no tax on employment income and no tax was applied in South Africa (Legwaila, 2019). Consequently, in the Budget Review 2017, National Treasury sought to amend the provisions of s 10(1)(o)(ii) as it was seen to be ‘excessively generous’. At first, National Treasury proposed to repeal the exemption, however after much consultation and public comments received, National Treasury introduced a capped exemption limited to R1 million in line with the principle of fairness and progressivity (National Treasury, 2017b, 7). Subsequently, in the 2020 Budget Review, the exemption threshold was revised upwards to R1.25 million per year from 1 March 2020 to encourage all South Africans working abroad to maintain their ties to South Africa. In this report, the researcher investigates the qualifying requirements and implications of s 10(1)(o)(ii) on South African resident expatriates, their employers (local and foreign) and the South African Revenue Service (SARS)Item An analysis of the income tax provisions applied to the tax exemption for Foreign Employment Income(2021) Gumede, WendyThe taxation of foreign employment income has been a major issue in South Africa and the amendment toS10(1)(o)(ii) of the Income Tax Act 58 of 1962 (‘the Act’) has presented more complications. S 10(1)(o)(ii) stated that all income received in respect of services performed outside of South Africa was free from taxation in South Africa if the employee performing such services was based outside of South Africa prior to 01 March 2020:“...(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, and those services were rendered during that period or periods...”1 (Income tax Act 58 of 1962) In the 2017 budget speech the finance minister, Pravin Gordhan, highlighted that in 2016 there had been a R30 billion shortfall in taxes collected. This was primarily due to Personal Income Tax, Value Added Tax(VAT) and Customs Duties. Amongst other proposals to reduce the shortfall, he proposed that the S10(1)(o)(ii) exemption of the Act be repealed as the exemption on foreign employment income appeared to be “excessively generous”. That meant that foreign employment income would be fully taxed, with the only relief available being a tax credit for foreign taxes paid. Several members of the sector and the general public wrote to the finance minister requesting that the draft change be reconsidered. The National Treasury responded and took into consideration some of the comments submitted by the public. One of the National Treasury’s response was to extend the date that the amendment to S10(1)(o)(ii) was set to come into effect to 01 March 2020.Another response was to increase the value of the amount to be exempted to R1.25 million instead of R 1 million for the year of assessment ending February 2021( National Treasury 2017a). The purpose of this report is to discuss how the amendments of S 10(1)(o)(ii) of the Act came about, how it will impact South African expatriates and possibly have them consider ceasing residency in South Africa, the benefits and process of ceasing residency. It is also to examine the legislative, administrative and judicial approaches of the taxation of foreign employment income. This report includes a comparative calculation of a South African tax resident working in another country compared to when that individual has ceased residency and lives in a country that South African expatriates are known to likely emigrate to as they either already work there or a country that has a strong economic structure