SARS has relaxed the 183 day rule for expatriates unable to leave SA due to the Covid lockdown

The swift and efficient response to COVID by the South African Government was intended to limit the transmission of the virus and prepare South African health services for the tidal wave of infected patients, however, along with this “hard” lockdown approach came a number of expected and unexpected consequences.

Besides the countless difficulties which have been created by the virus one of the unforeseen consequences was the impact the lockdown restrictions and travel bans would create on the concept of residency for individual taxpayers.

Many South African residents earn their income from abroad and while they may return to South Africa, they generally remain overseas for a sufficient amount time to qualify for the section 10(1)(c)(ii) foreign earnings exemption. The current legislation permits that where an individual is overseas for more than 183 days during a period of 12 months and for a continuous period of more than 60 days during that 12 month period then the income earned by such taxpayer will be exempt, up to a maximum amount of R1,25 million per year.

Due to the travel restrictions, a number of employees were forced to work remotely from home. As a result of this, the individual taxpayers who earned income from a foreign employer while working in South Africa would not qualify for the foreign earning exemption and may potentially suffer double tax as that individual taxpayer will be subject to foreign tax in the foreign country.

No relief is permitted in terms of the double taxation agreements. In addition to this, foreign tax credits in terms of section 6quat will not be allowable as the income was essentially earned while located in South Africa.

Taking this into consideration and based on the concern of the public, National Treasury and the South Africa Revenue Service (SARS) have proposed that the impact of the travel ban will be taken into consideration for these South African individual taxpayers in Draft Tax Law Amendment Bill.

It is proposed that the standard threshold of 183 days will be reduced by 66 days, which amounted to the time which South Africans were unable to travel and all borders were closed (27 March 2020 to 31 May 2020) therefore resulting in a new threshold of 117-days in any 12 month period for years of assessment ending 29 February 2020 to 28 February 2021. The 60-day continuous requirement remains.

Please contact us should you wish to discuss how these changes could impact your business.

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