South African Expat Tax: What Residents Working Abroad Must Know

South Africa taxes its tax residents on their worldwide income, regardless of where that income is earned. Since 1 March 2020, the section 10(1)(o)(ii) foreign employment income exemption has been capped at R1.25 million per year of assessment - foreign employment income above that cap is taxable in South Africa at your marginal rate, subject to any applicable foreign tax credit (SARS: Foreign Income, 2024).

Key Takeaways

South African tax residents are taxed on worldwide income, including foreign employment income.

The s10(1)(o)(ii) exemption covers up to R1.25 million of foreign employment income per year - if you meet the 183/60 day test.

Income above R1.25 million is taxable in South Africa, with a credit for foreign taxes paid.

Filing provisional tax (IRP6) is mandatory for expats with foreign employment income.

Who is a South African tax resident?

South Africa uses two tests to determine tax residency (SARS: Tax Residency):

1. Ordinarily resident test: If South Africa is the country you regard as your permanent home - the place you intend to return to after travels or work abroad - you are ordinarily resident. This is not a day count. It’s based on where your settled home is.

2. Physical presence test: If you spend more than 91 days in South Africa in the current year and more than 91 days in each of the five preceding years and more than 915 days total in those five preceding years, you are a resident by physical presence.

Being a South African citizen or holding a passport does not make you a tax resident - but most South Africans working abroad remain ordinarily resident unless they formally cease tax residency.

The foreign income exemption: section 10(1)(o)(ii)

South African tax residents who earn employment income outside South Africa can qualify for an exemption under section 10(1)(o)(ii) of the Income Tax Act, provided they meet both conditions (legislation.gov.za):

Outside South Africa for more than 183 days in any 12-month period, and
More than 60 of those days are consecutive.

If both conditions are met, the first R1.25 million of foreign employment income is exempt from South African income tax for that year of assessment. This cap has applied since 1 March 2020, replacing the previous unlimited exemption.

Foreign employment income above R1.25 million is included in your South African taxable income and taxed at your marginal rate, after applying any available foreign tax credit.

Foreign tax credits

If you pay income tax in the country where you work, you can claim a foreign tax credit under section 6quat of the Income Tax Act to prevent double taxation (SARS: Foreign Tax Credits). The credit reduces your South African tax liability by the amount of foreign tax paid on the same income, up to the South African tax on that income.

If the foreign tax rate is higher than South Africa’s marginal rate on the income, the South African liability is effectively eliminated. If the foreign rate is lower, a top-up payment to SARS is required on the difference.

Check whether South Africa has a double taxation agreement (DTA) with the country you work in - DTAs can change which country has the primary right to tax your employment income. South Africa has agreements with most major economies (SARS: DTAs).

Provisional tax obligations for expats

South African tax residents earning foreign employment income are provisional taxpayers. You must file:

First IRP6 return by 31 August (six months into the tax year).
Second IRP6 return by 28/29 February (end of the tax year).
Annual ITR12 return after the tax year closes.

Failing to file provisional tax or underestimating your taxable income on the IRP6 can result in interest and an underestimation penalty - even if your final annual tax position turns out to be straightforward.

Ceasing South African tax residency

If you’ve left South Africa permanently with no intention to return, you may be able to cease tax residency. The practical steps include:

Confirming you no longer meet either the ordinarily resident test or the physical presence test.
Declaring the date of cessation on your final South African return.
A deemed disposal of all worldwide assets (except South African immovable property) on the date of cessation - this can trigger a capital gains tax liability (the “exit tax”).
After cessation, only South African-source income (rental, SARS pensions, certain interest and dividends) remains in scope for South African tax.

Ceasing tax residency is a major legal step. Get advice from a tax practitioner who specialises in expat and residency matters before making any declaration to SARS.

Common mistakes made by expats

Assuming years abroad end South African tax residency. Time spent working overseas does not automatically change your tax residency - the ordinarily resident test is based on intent, not days.

Not filing South African returns while abroad. South African tax residents must file provisional and annual returns, even when working overseas.

Forgetting to claim the foreign tax credit. Paying tax in two countries is avoidable through the credit mechanism. Not claiming it results in unnecessary double taxation.

Assuming the exemption covers all income. The R1.25 million cap is a firm ceiling - foreign employment income above this is taxable in South Africa, regardless of how long you’ve been abroad.

Not checking whether a DTA applies. A DTA between South Africa and the country you work in may provide more favourable treatment than the domestic rules.

Frequently Asked Questions

Does holding a foreign work visa or permanent residency end my South African tax residency?

No. Foreign immigration status does not change your South African tax residency. Tax residency is determined by the ordinarily resident test - whether South Africa is still your settled home - and the physical presence test. You may hold a foreign permanent residency and still be a South African tax resident if you intend to return.

What is the R1.25 million cap on the foreign income exemption?

From 1 March 2020, the section 10(1)(o)(ii) exemption is capped at R1.25 million per year of assessment. If you are a South African tax resident, work abroad, and meet the 183/60 day test, the first R1.25 million of foreign employment income is exempt. Any income above the cap is taxable in South Africa, subject to a credit for foreign taxes paid.

Do I still need to file South African tax returns if I live and work abroad?

Yes, if you remain a South African tax resident. You must file an annual ITR12 declaring worldwide income. If you earn foreign employment income above the R1.25 million exemption, provisional tax is also mandatory, with IRP6 payments due in August and February each year.

What is the foreign tax credit and how does it work?

A foreign tax credit reduces your South African income tax by the amount of income tax you paid to a foreign country on the same income, up to the South African tax on that income. If the foreign rate is higher than South Africa’s marginal rate, the South African liability is eliminated. If the foreign rate is lower, a top-up payment to SARS covers the difference.

Sources

SARS: Foreign Income and Expat Tax - s10(1)(o)(ii) exemption, foreign tax credits, and provisional tax obligations
SARS: Double Taxation Agreements - list of countries and DTA provisions
Income Tax Act 58 of 1962, sections 10(1)(o)(ii) and 6quat - legislative basis for the foreign income exemption and foreign tax credit

This guide is for general educational purposes. Expat tax rules are complex and depend on individual circumstances. Verify your position with a registered tax practitioner before filing or ceasing tax residency.