Interpretation Note 16 - 2021 (Issue 4) – “Section 10(1)(o)(ii) Exemption” - Layman Version

Foreign Employment Income Tax Exemption (Section 10(1)(o)(ii)) – Explained Simply

Updated by SARS: 28 June 2021
Applies from: 1 March 2020 onwards

Law: Income Tax Act, Section 10(1)(o)(ii)

What Is This About?

• • If you are a South African tax resident working outside the country, some of the money you earn may be exempt from South African income tax.
  • But – there are rules and limits. This guide explains:
    • • Who qualifies
      • What income is exempt
      • How much is exempt
      • What doesn’t count
      • How SARS defines “working outside SA”

Key Takeaways

• • You can earn up to 25 million per year tax-free if you work abroad and meet SARS’s conditions.
  • Any income above R1.25 million will be taxed in South Africa.
  • You must work outside SA for more than 183 full days (24-hour days) in any 12-month period.
  • At least 60 of those days must be consecutive.

Who Qualifies?

• • You must:
    • • Be a South African tax resident.
      • Be employed (not self-employed or a contractor).
      • Work outside South Africa for more than 183 days in total over any 12-month period.
      • Spend at least 60 of those days in a row outside SA.
      • Earn a salary or similar income (e.g. bonuses, commission, leave pay, overtime).
      • Directors’ fees, retrenchment packages, or money earned without working (like a settlement) do not qualify.

What Income Is Covered?

• • Qualifying income includes:
    • • Salaries and wages
      • Bonuses
      • Overtime pay
      • Commission
      • Leave pay
      • Certain share scheme gains (e.g. under Section 8C)
  • Not included:
    • • Independent contractor payments
      • Director’s fees (for non-working directors)
      • Payments for cancelling or ending your job (like severance)

What Counts as “Outside South Africa”?

• • You must work outside the land and sea territory of SA, which includes:
    • • Anywhere beyond SA’s borders and 12 nautical miles of sea (about 22.2 km)
      • NOT areas where SA still controls resources (like oil drilling zones)
      • If you work on an oil rig or similar in SA’s extended marine zones (called the exclusive economic zone or continental shelf), your income might not qualify for exemption.

What Is the “183-Day Rule”?

• • You must spend more than 183 full days (midnight to midnight) outside SA in any rolling 12-month period.
  • You also need to be outside SA for at least 60 straight days.
  • All calendar days count (workdays, weekends, leave, sick days).

Example of How the Tax Works

• • Let’s say you earn R2 million in foreign income in a tax year.
  • The first R1.25 million is tax-free.
  • The remaining R750,000 is taxed in SA, according to your personal tax rate.
  • If you didn’t work outside SA for the required days, then none of your foreign income is exempt.

Extra Notes

• • You need to keep records: employment contracts, flight tickets, passport stamps, and payslips.
  • If you work partly in SA and partly outside, you must apportion the income – only the part related to foreign work qualifies.

Common Misunderstandings

 

·        Myth	·        Reality
·        “I don’t pay tax if I work overseas.”	·        You still pay tax in SA unless you qualify for the exemption.
·        “I can use leave days to make up 183 days.”	·        Only if the leave was spent outside SA.
·        “All foreign income is exempt.”	·        Only up to R1.25 million, and only if you qualify.

In Simple Terms

• • If you’re a South African working abroad, SARS gives you a break — but only if you’re truly working overseas most of the time. If you meet their conditions, you can earn 25 million tax-free per year. The rest is taxed like normal.