FOREIGN EMPLOYMENT AND SOUTH AFRICAN TAX CONSEQUENCES: WHY REMUNERATION FROM A FOREIGN SOURCE IS NOT NECESSARILY FOREIGN INCOME

Economic pressures both locally and internationally have led many South Africans to seek more rewarding opportunities for their labour, or to relocate abroad entirely. While this may involve a new start for some, the South African Revenue Service (“SARS”) may still levy taxes on certain individuals.

Residence and Source of Income

The point of departure is the definition of ‘gross income’ in section 1 of the Income Tax Act 58 of 1962. For any year of assessment, a South African resident is liable on the total amount received or accrued in their favour, in cash or otherwise. For a non-resident, only amounts received from a source within, or deemed to be within, South Africa is included. This article focuses on the tax implications for individuals in South Africa receiving remuneration from a foreign source.

South Africa has a mixed taxation system, including both sourced-based and residence-based taxation. It therefore follows that individuals found to be a resident for South African tax purposes are liable for income tax earned on their worldwide earnings. The legal test to determine whether an individual is a South African resident for tax purposes is to explore whether an individual is an ordinary resident in South Africa (‘SA’) or meets the physical presence test as defined in section 1 of the Income Tax Act. Double Taxation Agreements are relevant and may serve as a basis to exclude an individual from being a South African resident.

Living Abroad Does Not Break Tax Residency

The Appellate Division (now known as the Supreme Court of Appeal) in Cohen v Commissioner for Inland Revenue, defined the meaning of ordinary resident as, ‘… the country to which he would naturally and as a matter of course return from his wonderings; as contrasted with other lands it might be called his usual or principle residence and it would be described more aptly than other countries as his real home.’ This test is relevant for those individuals who live, travel or commute between SA and another country for personal or employment interests. The court found that the taxpayer was a South African tax resident for the following reasons:

1. It was customary for the taxpayer, over a period of ten years, to undertake extended visits to foreign countries and to return to South Africa thereafter;

2. The taxpayer had entered into a five-year lease in Johannesburg which remained in force despite his absence from the country;

3. The taxpayer’s permits in the United States were of a temporary nature and subject to renewal.

A noteworthy comment by Judge Davis confirms that a taxpayer’s absence from South Africa for an entire year of assessment does not, on its own, negate ordinary residence.

Taxpayers who are physically present in South Africa, earning income from a foreign source, and have never left the Republic would naturally meet the physical presence test. It follows that this category of taxpayer will naturally be liable to SARS for income tax.

The requirements for the physical presence test requires a taxpayer to be physically present in South Africa for a period or periods exceeding:

1. 91 days in total during the year of assessment under consideration;

2. 91 days in total during each of the five years of assessment preceding the year of assessment under consideration;

3. 915 days in total during those five preceding years of assessment;

4. An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.

Where a taxpayer meets the physical presence test, that taxpayer will be regarded as a South African tax resident and will accordingly be liable to the South African Revenue Service for income tax. This applies, irrespective of whether the source of the income is foreign.

Intention To Break Tax Residency

The Supreme Court of Appeal in Commissioner for Inland Revenue v Kuttel held that the taxpayer was not an ordinary resident in SA based on the following facts:

1. The taxpayer had formally immigrated to the United States of America;

2. The taxpayer purchased property in the United States with an intention of creating a home;

3. The taxpayers’ children immigrated from South Africa to the United States upon completing secondary education;

4. The taxpayer and members of his family became United States citizens;

5. The taxpayer transferred his assets from South Africa which demonstrated an intention to break South African tax residency.

An evaluation of the Cohen and Kuttel judgments indicates that a taxpayer’s state of mind is critical when determining ordinary residence. This approach is reflected in SARS Interpretation Note 3, which requires both an intention to cease residence and conduct consistent with that intention.

A taxpayer will no longer attract tax consequences provided the ordinary residence or physical presence test is not met.

Kindly note that the cases illustrated above are based on their unique facts and do not provide a uniform solution to all tax-related matters. It is therefore necessary to seek legal advice from our skilled attorneys who are eager to assist you in navigating this complex area of law. Contact our offices at info@rouxlegal.com to schedule a consultation.

By Jarryd Thurston

(Candidate Attorney)

14 January 2026

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