Article : ‘183 days rule’ changes for South Africans working abroad
Interpretation Note 16 (Issue 4) – dated 28 June 2021
ACT : INCOME TAX ACT 58 OF 1962
SECTION : SECTION 10(1)(o)(ii)
SUBJECT : EXEMPTION FROM INCOME TAX: FOREIGN EMPLOYMENT INCOME
4.1.5 Days test
Period or periods exceeding 183 full days in aggregate
In order to qualify for the exemption, a person must be in employment, outside the Republic, for at least 183 full days during any 12-month period. A “full day” means 24 hours (from 0h00 to 24h00). The 183 full days do not have to be consecutive or continuous but, in order to meet the exemption requirements, a total of 183 full days in any 12-month period must be exceeded. It is not necessary to exceed this period by a full day. Any amount of time in excess of 183 full days, such as a few hours, will be sufficient.
Calendar days must be looked at, not only work days, when calculating whether a person has been outside the Republic for 183 full days.
Weekends, public holidays, annual leave days, sick leave days and rest periods (as required under the specific terms of a contract of employment) that are spent outside the Republic are taken into account for purposes of calculating the period or periods outside the Republic.
The interest in this article is:
How many days do I need to work abroad to be eligible for the 183 days exemption?
(Such exemption applies to the first R1.25m foreign earnings p.a.)
In the past, we looked at a calendar year running from 1 January to 31 December (preceding the tax year ending in February of the following year). We then looked to see if the requirements for 183 days abroad and 60 continuous days within this period, was also met.
A small change in interpretation has arisen:
We still have 183 days abroad and 60 continuous days abroad requirements, however, recent interpretations suggest it is now possible that a contractor can use 183 days abroad for foreign income exemption (under R1.25m), for two tax years….
An example demonstrates this.
Contractor leaves South Africa for Mozambique on 31 October. He works abroad for 7 months and earns income for foreign services. Under the old interpretations, the count of days was done in a calendar year from 1 January to 21 December. He would have been abroad for 2 months and not eligible for any exemption on foreign income earned from 31 October to 28 February.
The new interpretation is that one looks to see how long the contractor is abroad for…the calendar count in this example starts on 31 October. The contractor achieves both 183 days plus and 60 consecutive days abroad.
He is eligible for the foreign income exemption.
More so, he gets this for BOTH tax years – the first one (with 4 months abroad), and the second one (with 3 months abroad)…
This suggests that contractors who used to spend 183 days abroad each year, can plan smarter and (subject to planning) be away for 92 days in each tax year to be eligible for the foreign tax exemption…
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