RESIDENTS AND NON RESIDENTS
CHAPTER 5 EXEMPTIONS
5.2 SERVICES RENDERED BY A RESIDENT ON BEHALF OF ANY EMPLOYER OUTSIDE OF RSA
CHAPTER 5
"any remuneration as defined in paragraph 1 of the Fourth Schedule
(i)
(ii) received by or accrued to any person during any year of assessment in respect of services rendered outside the Republic by that person for or on behalf of any employer, if that person was outside the Republic-
(aa) for a period or periods exceeding 183 full days in aggregate during 12months period commencing or ending during that year of assessment; and
(bb) fora continuous period exceeding 60 full days during that period of12 months,
and those services were rendered during that period or periods: Provided that-
(A) for a purpose of this sUbparagraph, a person who is in transit through the Republic between two places outside the Republic and who does not formally enter the Republic through aport of any as defined in the immigration Act, 2002 (Act No. 13 of 2002), shall be deemed to be outside the Republic; and
(B) the provisions of this SUbparagraph shall not apply in respect of any remuneration derived in respect of the holding of any office or from services rendered for or on behalf of any employer, as contemplated in section 9(1)(e);"
Remuneration is specifically defined in paragraph 1 of the Fourth Schedule to the Income Tax Act received by or accrued to any person during any year of assessment in respect of services rendered the term "received by or accrued to" retains its meaning for income tax purposes.
The remuneration that is covered by the exemption relates to remuneration received or accrued in the year of assessment in which the 12 month period
commences or ends. If, for example, remuneration accrues in the 2005 year of assessment but the remuneration is in respect of services rendered outside the Republic during a 12 month period commencing or ending in the 2002 year of assessment, the exemption will not apply.
Payments in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment are not covered by this exemption.
Outside the republic
This literally means services rendered outside the borders of the Republic of South Africa. It must be noted that the borders of the Republic include territorial waters, which is a belt of sea within 12 nautical miles (roughly 22, 2 kilometres) beyond the coastline of the country. Remuneration from services rendered beyond the coastline of the Republic will therefore only be exempt if the services are rendered outside the territorial waters.
For or on behalf of any employer
"any employer" means an employer which could either be an employer operating in South Africa, or a non-resident employer.
For a period or periods exceeding 183 full days in aggregate
"full day" means 24 hours (from OhOO to OhOO). The 183 days do not have to be consecutive or continuous, but a total of 183 days must be exceeded.
During any 12 months period commencing or ending during that year of assessment
Each month in the 12 month period, is a "month" as defined in the Interpretation Act, 1957 i.e. a calendar month. The period must therefore commence on the first day of a particular month, and end on the last day of the twelfth calendar month thereafter.
The 183 day period mentioned above must fall within a period of 12
of assessment, or a calendar year; it is £!JY...12 month period that commences or ends in the year of assessment in which the remuneration in question may be taxed or exempted.
To identify the 12 month period it is necessary to identify the period during which the services were rendered to the employer and to fit the 12 month period so as include (or as much of it as can fit) during which the services were rendered.
Practical application
In identifying the possible 12 month periods that may be used, it is advisable to first identify the period during which the services were rendered to the employer (employment period). A first twelve month period can then be determined by working forward 12 months from the first day of the calendar month in which the first day of the employment period falls.
If this 12 month period fails to meet the requirements for the exemption, another 12 month period may be used by working back 12 month from the last day of the calendar month in which the last day of the employment period falls. As can be seen, there is an option of making use of anyone of two 12 month periods.
For a continuous period exceeding 60 full days during that period of 12 months
There must be an absence of more than 60 continuous days in the same 12 month period mentioned above.
And those services were rendered during that period or periods
The services that generated the income to be considered for exemption must have been rendered during the 183 day and 60 day periods mentioned above.
In transit between two places outside the Republic
This means that the point of departure and the point of destination of the specific journey that is being undertaken must be outside the borders of the Republic, as described above.
The provisions of this subparagraph shall not apply in respect of my remuneration derived in respect of the holding of any office or from services rendered for or on behalf of any employer, as contemplated in section 9(1 )(e) of the Income Tax Act
The exemption does not apply to employment income earned by persons mentioned in section 9(1)(e) of the Act.
Let's look at two examples to illustrate this section.
Example 1
A lady was seconded by a SA holding company to a subsidiary in Hong Kong for the period 1/3/2001 to 30/9/2001. According to her employment company she would be remunerated by the SA company and that she will not be permitted to return to SA during the secondment period.
1) If she remained in Hong Kong for the entire period, she would be out of SA for a continuous period of 214 days. Therefore she will qualify for the exemption
2) If the employer is satisfied the S 1O(i)(0) applies he may elect not to deduct PAVE.
Example 2
Mrs J is employed at SM. Due to her special used knowledge in aviation she was seconded to the Hawaii sUbsidiary on 1/6/01 until 31/12/01. The Hawaii branch remunerated her during this period.
She returned to SA during the folloWing periods:
=
5 - 9/9/01= 11-15/11/01
= 21-31/12/01
(5 days) (5days) (11days)
Periods employed in Hawaii:
1/6 - 26/7
1/8- 4/9
10/9- 10/11 16/11-20/12
=
=
=
=
56 days 35 days 62 days 35 days 188 days
Mrs J was absent from SA for more than 183 days during a 12 month period and 60 days or more was continuous. Therefore the income from Hawaii will be exempt from income tax.