South Africa - Income Tax

South Africa - Income Tax

Taxation of international executives

Related content

Residence

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Tax returns and compliance

Relief for foreign taxes

General tax credits

Sample tax calculation

All income tax information is summarized by KPMG Services (PTY) Limited, the South Africa member firm of KPMG International, based on the Income Tax Act, No 58 of 1962 (as amended).

Residence

Broadly speaking, tax residence can be established through either physical presence or through being considered ordinarily resident in South Africa.

Physical presence test

In terms of the physical presence test, where an individual is not ordinarily resident, he/she will be considered to be resident in South Africa if he/she is physically present in the Republic for a period exceeding 91 days during the current year of assessment as well as during each of the five preceding years of assessment, and he/she was physically present in the Republic for a period exceeding 915 days (or part-days) in aggregate during those preceding five years. Where a person who became resident by virtue of physical presence in South Africa, is outside the Republic for a continuous period of 330 full days after ceasing to be physically present in the Republic, that person will be deemed not to have been resident from the day he/she ceased to be physically present in the Republic.

Ordinarily resident

The concept of ordinarily resident is not defined in the Income Tax Act, No. 58 of 1962, as amended (the Act), and is widely held (from case law) to be the country which an individual considers to be his/her real home. i.e. the place where his permanent place of abode is, where his belongings are stored, which he leaves for temporary absences and to which he regularly returns after such absences. If the taxpayer is habitually and normally resident here, apart from temporary or occasional absences of long or short duration or if he/she decides to settle permanently in South Africa, South Africa is recognized as being his/her real home and the individual will become a resident by virtue of ordinarily residence immediately.

Types of taxable compensation

Generally speaking, most types of remuneration and benefits received by an employee for services rendered constitute taxable income regardless of where paid; subject to certain exceptions.

Typical items of an expatriate compensation package set out below are fully taxable unless otherwise indicated.

Reimbursements of foreign and/or home country taxes

In most cases where the South African taxes are, by reason of tax equalization, the employer’s responsibility, the compensation should be grossed-up for the tax liability. This gross-up must account for the full tax-on-tax effect of the employer paying the taxes.

Where the employer reimburses taxes paid by the employee, these taxes are treated as a taxable benefit.

Home leave flights

All home leave flights are taxable. This does not apply to relocation flights or flights provided for travel in conjunction with business travel.

Cost-of-living allowances

Cost-of-living allowances are fully taxable in South Africa.

Accommodation

For purposes of determining the value of the taxable benefit relating to employer-provided accommodation, no rental value is placed on any accommodation provided by an employer to an employee while he/she is away from his/her usual place of residence outside of South Africa, provided:

  • the employee was physically present in South Africa:
    • for a period of less than 90 days during that tax year; or
    • for a period not exceeding two years from his/her date of arrival for purposes of performing his/her employment duties.

The concession above is limited to ZAR 25,000 per month during which the accommodation was provided during the tax year, for up to 2 years. This provision will only apply if that employee was not present in South Africa for a period exceeding 90 days during the tax year immediately preceding the date of arrival in South Africa.

If the aforementioned conditions are not satisfied the accommodation provided to an employee by his/her employer is fully taxable in South Africa. The value of the taxable benefit will be the higher of the actual cost incurred by the company, less any consideration paid by the employee, or the result of a remuneration based formula. The application of the formula or the rental value is dependent on various factors and should be evaluated on a case-by-case basis. An employer may only use the lower value upon obtaining a Directive from SARS, which must be applied for annually.

Following recent legislative amendments, where the employer rents the accommodation from an unconnected third party, the value of the fringe benefit should be the cost to the employer in providing the accommodation. In addition, the legislation does not provde for an apportionment where employees share employer-provided accommodation.

Benefits-in-kind

Benefits-in-kind generally form part of taxable compensation.

Monthly taxable value of company vehicle: The monthly taxable value determined value (the cash cost including VAT) per month of each vehicle, where the vehicle is

  • subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3,25% of the determined value; or
  • acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.

80% of the taxable benefit will be subject to PAYE on a monthly basis. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

The taxable value may be reduced on assessment of the employee’s income tax return in accordance with the ratio of business kilometres travelled to total kilometres travelled.

Further relief is available for the cost of licence, insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and the number of private kilometres travelled is substantiated by a log book.

Employer contributions to an approved South African medical aid fund, or to any fund which is registered under any similar provision contained in the laws of any other country where the medical scheme is registered, will be taxable. Employer contributions to a foreign medical scheme, which are not paid to a fund as described above, will be regarded as a taxable benefit where the employee acquires the right to have those contributions made by his/her employer in terms of his/her contractual arrangements. If the employee is a non-resident for South African tax purposes, these contributions will be taxable in South Africa to the extent that they are regarded as South African sourced income. Furthermore, any employee contributions, which the employer takes over, will be taxable.

With effect from the 2017 South African tax year, taxpayers under the age of 65 years may deduct from their tax liability a tax credit of ZAR 286 per month for the first two beneficiaries and ZAR 192 per month for each additional beneficiary, in respect of medical aid contributions made by themselves or their employer to an approved South African medical aid fund or any fund which is registered under any similar provision contained in the laws of any other country where such medical scheme is registered.

Tax-exempt income

Reimbursement of costs to relocate an employee and his/her family to South Africa at the beginning and end of a South African assignment are not taxable in most circumstances. In addition, a tax-free allowance for settling-in costs may be provided up to a specified limit (usually up to one month's basic salary).

Expatriate concessions

There are no special tax concessions for expatriates. However, assuming the foreign national is not a South African tax resident, non-South African-sourced employment income, investment income and capital gains (excluding gains derived from the disposal of immovable property held in South Africa) will not be subject to tax.

Salary earned from working abroad

To the extent that a non-resident individual renders services outside of South Africa, the remuneration attributable to the time worked abroad would not be taxable in South Africa, as it would not be sourced in South Africa. This apportionment will usually be done on the basis of days spent working inside and outside South Africa. It is however our recommendation that the requirement for the individual to render services abroad be detailed in a contract of employment.

With regards to resident individuals, foreign sourced employment income can be exempted subject to certain conditions, namely that services were rendered abroad for more than 183 full days in any 12 month period, including more than 60 continuous full days.

Taxation of investment income and capital gains

Non-residents are taxable on South African-sourced investment income and on capital gains derived in respect of immovable property held in South Africa. South African residents are generally fully taxable on worldwide income and capital gains.

With respect to rental income, deductions are allowed for interest, rates, taxes, and other related expenses.

In broad terms, taxable capital gains are computed by taking the disposal or deemed disposal proceeds and deducting the base cost of the asset. Thirty-three percent of the gain will be included in taxable income and taxed at the individual’s marginal tax rate (i.e. a top income tax rate of 41% would result in an effective rate of CGT of 16.4%). An annual exclusion of ZAR 30,000 per year is available with effect from 1 March 2012. (This was ZAR 20,000 for the 2012 tax year). Certain exclusions apply.

Tax returns and compliance

The deadlines for submission of individual income tax returns for the 2016 tax year have not been issued by SARS. However, the expected dates for submissions are as follows:

  • Manual Submission deadline for all taxpayers: 22 November 2016.
  • Electronic submission deadline for non-provisional taxpayers: 22 November 2016.
  • Electronic submission deadline for provisional taxpayers: 31 January 2017.

SARS will assess the return and notify the taxpayer of any taxes outstanding or refund due. Tax is due by the date specified on the assessment, typically 30 days from the date on which the assessment is issued.

Late submission of an income tax return will attract an administrative non-compliance penalty.

Relief for foreign taxes

Foreign tax credit relief is typically granted in terms of a Double Tax Agreement, or in terms of the domestic provisions (section 6quat).

General tax credits

As mentioned above, with effect from the 2015 South African tax year, a taxpayer may deduct from his/her tax liability a tax credit of ZAR 286 per month for the first two beneficiaries and R 192 for each additional beneficiary, in respect of medical aid contributions to qualifying medical aid schemes.

Sample tax calculation

This calculation1 assumes a married taxpayer non-resident in South Africa with two children whose three-year assignment begins 1 March 2011 and ends 29 February 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

 

  2015
USD
2016
USD
2017
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 0
Home leave 5,000 0 10,000
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = ZAR16.00

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes and the “determined value” for tax purposes is USD 50,000 (including VAT). The company car has a maintenance plan.
  • Assumes that the assignee does not maintain a logbook and mainly undertakes private travel using the company provided vehicle.
  • The employee is non-resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation (no Totalization Agreements with South Africa exist in any case).

Calculation of taxable income

Year ended 2015
ZAR
2016
ZAR
2017
ZAR
Days in South Africa during tax year 365 365 365
Earned income subject to income tax      
Salary 1600,000 1600,000 1600,000
Bonus 320,000 320,000 320,000
Cost-of-living allowance 160,000 160,000 1600,000
Housing allowance 192,000 192,000 192,000
Company car (ZAR 400,000) 156,000 156,000 156,000
Moving expense reimbursement 0 0 0
Home leave 0 160,000 160,000
Education allowance 48,000 48,000 48,000
Total earned income 2,476,000 2,732,000 2,732,000
Other income 96,000 96,000 0
Total income 2,572,000 2,708,200 2,708,200
Deductions 0 0 0
Total taxable income 2,548,200 2,708,200 2,708,200

 

Year ended 2015
ZAR
2016
ZAR
2017
ZAR
Taxable income as above 2,548,200 2,548,200 1,706,000
South African tax thereon  945,252 1,031,415.59 1,029,792.59
Less:      
Domestic tax rebates (dependent spouse rebate) (12,726) (13,257) (13,500)
Foreign tax credits (Maximum allowed equal to South Africa tax liability on foreign-sourced income).  0 0 0
Total South African tax 932,526 1,018,158.59 1,016,292.59

Footnotes

1Sample calculation generated by KPMG Services (PTY) Limited, the South Africa member firm of KPMG International, based on the Income Tax Act, No 58 of 1962 (as amended).

© 2016 KPMG Services (Pty) Limited, a South Africa private company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

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