A proposed law change aimed at providing relief to South African expatriates who were unable to leave South Africa on account of last year’s lockdown was confirmed with the promulgation on 20 January of the Taxation Laws Amendment Act No. 23 of 2020 (TLAA), which relaxes the requirements of the foreign employment exemption.
Ordinarily, to qualify for the exemption of foreign employment earnings up to ZAR1.25 million, taxpayers are required to spend more than 183 days in total outside South Africa during a twelve-month period, of which more than 60 days must be continuous.
However, due to the travel bans imposed as a result of the COVID-19 pandemic, many individuals were unable to travel to their countries of employment and were also therefore unable to meet the 183-day threshold. This could have resulted in a substantial unanticipated South African tax liability.
The TLAA reduces the 183-day threshold by 66 days, which means that taxpayers who spent more than 117 days outside South Africa may still qualify for the exemption. This 66-day reduction is based on the period from 27 March 2020 to 31 May 2020 when South Africa was under Covid-19 alert levels 5 and 4.
The requirement for a continuous period of more than 60 days remains unchanged; the concession only extends to the total number of days spent outside South Africa. The TLAA is not a permanent change to the exemption; it only applies to any 12-month period in respect of any year of assessment ending on or after 29 February 2020 and on or before 28 February 2021.
Significantly, qualifying taxpayers who meet both the aggregate day and continuous day requirements, are permitted to leverage the exemption over multiple tax years because it applies in any 12-month period beginning or ending in a tax year concerned. This means that the same period outside South Africa can be used to look both backwards and forwards (sometimes known as ‘double dipping’). So taxpayers should plan carefully to ensure that they are both using the exemption correctly and to maximum benefit.