At present, Section 10(1)(o)(ii) of the Income Tax Act (58/1962) states that if a South African resident works in a foreign country for more than 183 days a year, with more than 60 of those days being continuous, any foreign employment income earned is exempt from tax, subject to certain conditions. Earlier this year in the 2017 Budget, it was proposed that this exemption be adjusted, as it is excessively generous to those who still benefit from it (ie, private sector employees). Instead, it was proposed that foreign employment income be exempt from tax only if it is subject to tax in the foreign country.


Section 10(1)(o)(ii) of the Income Tax Act was introduced in 2001 when South Africa changed from the source to residence basis of taxation in order to provide tax relief to South African tax residents who rendered services outside South Africa. According to the Explanatory Memorandum on the Revenue Laws Bill 2000, this was done to bring South Africa in line with internationally accepted practice. At the time, the Section 10(1)(o)(ii) exemption did not apply to certain public sector employees. However, it was again revisited in 2011, when the source rules were unified and Section 9 of the act was significantly amended. Following the Section 9 amendments, the source of services provided to or on behalf of the various tiers of government were deemed to be from a South African source, irrespective of where those services were rendered. Consequently, Section 10(1)(o)(ii) was also amended by inserting a proviso excluding all public sector employees from the exemption.


The proposal in the draft Taxation Laws Amendment Bill 2017 goes further than the proposal stated in the 2017 Budget. The bill proposes not that the exemption be adjusted, but rather that it be repealed in its entirety. Relief from double taxation would still be available under Section 6quat of the act.


The reasons behind this move are twofold:

  • The main purpose of the exemption was to prevent double taxation occurring, considering that a limited number of double taxation agreements (DTAs) had been concluded by South Africa and other countries at the time. The National Treasury has realised that this exemption creates opportunities for double non-taxation where foreign countries do not impose income tax.
  • The exemption has led to the unequal treatment of public and private sector employees.

Role of DTAs and practical considerations

Insofar as the DTAs eliminate double taxation by allocating taxing rights between source and resident states, resident states are not precluded from taxing the same income that a source state is allocated a right to tax. Where the resident state (ie, the state where the taxpayer is a tax resident) imposes tax in respect of the same income that the source state (ie, the state where the services are rendered) has a right to tax, the resident state must provide relief by way of a foreign tax credit or exemption. A foreign tax credit is similar to the rebate available under Section 6quat.

In practice, the salary of a person who is employed by a South African employer and renders services abroad could be subject to tax in the source state and in South Africa before the employee can claim the relief available under Section 6quat. The effect of this is that employees will likely be out of pocket until such time that they can claim a refund from the South African Revenue Service.

The proposed amendment will take effect on March 1 2019 and will apply to years of assessment commencing on or after that date.

For further information on this topic please contact Nandipha Mzizi at Cliffe Dekker Hofmeyr by telephone (+27 115 621 000) or email ( The Cliffe Dekker Hofmeyr website can be accessed at

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