Abstract
South Africa recently made changes to the way it treats and ultimately taxes foreign employment income, effective 1 March 2020, and although the country employs a residence-based taxation system (where its tax residents are taxed on their worldwide income), questions arise as to the practical implications and outcomes as a result of the changes. Although only a slight addition and amendment were made to the wording of the Income Tax Act, the impact could be severe on both the tax community (morale) and the fiscus as a result of the number of South Africans employed abroad still being considered South African tax residents. The universal objective of this paper is to study the evolution of section 10(1)(o)(ii) of the Income Tax Act and how it has evolved and unlimitedly treats Foreign Employment Income. The author will further explore the concept of tax residence from a domestic and international (Model Tax Convention) point of view and point out the areas of concern as a result of the recent changes. Using a Doctrinal Methodology, the study investigates the origin and evolution of the relevant section of the Income Tax Act and the concept of foreign income from an international perspective (as applicable to South African Tax Residents), and considers potential pitfalls in relation to the fiscus and to the tax community at large. The author studies some practical implications for both the employer and employee as well as the concepts of ‘financial emigration’ and ‘cessation of tax residence’, and reflects on what may well be perverse outcomes as a direct result of the amendment. In conclusion, the study encapsulates the content mentioned above, reflects on the findings at hand, and ultimately provides recommendations and further research opportunities.
M.Com. (South African and International Taxation)