How to Qualify for Foreign Income Tax Exemption in SA
South African tax residents can qualify for foreign income exemption under Section 10(1)(o)(ii) if they earn employment income abroad and meet two key requirements: they must be outside South Africa for at least 183 days in a 12-month period, including 60 consecutive days. Up to R1.25 million of foreign income may be exempt from tax.
Document Checklist
- Identify the starting point of your 12-month. This is not necessary the first day of departure since the law permits “any 12-month period”. For example: 15 March 2025 to 14 March 2026.
- Make sure your employment contract explicitly identifies you as an employee rather than, for instance, a contractor. This exemption applies exclusively to individuals in an employer-employee relationship.
- Payslips covering the complete tax year (not merely a 12-month period) verifying the total gross income. For instance, if employed by a South African employer until December 31, 2025, and transitioning to foreign employment starting January 15, 2026, only include the gross foreign employment income earned in January and February 2026.
- Evidence of accurate exchange rates applied in income determination. Utilise the SARS exchange rate tool, https://tools.sars.gov.za/rex/rates/Default.aspx ,and capture screenshots. If the country applies a different exchange rate, locate historic exchange rates and take screenshots accordingly.
- Scan the relevant passport pages and include a table listing the dates of entry and exit from the country within the 12-month period.
- From the table above, count all days spent outside of South Africa, excluding the departure and arrival dates. This is to confirm compliance with both the requirement of 183 full days spent outside South Africa and the 60 consecutive days requirement. Ensure that days only within the 12-month period was counted.
- Obtain a letter from your employer confirming that your visits to South Africa are solely for rest and relaxation, not for work, if this applies to your situation. SARS will otherwise allocate your foreign income as partly exempt and partly South African sourced.
- Create a table listing all the working days. (This includes weekends and public holidays.) This table should display all the working days in the foreign country as well as any working days in South Africa, to enable the apportionment of foreign income on a working day basis between foreign exempt income and foreign income earned in South Africa. (Foreign income earned in South Africa will be taxed normally.)
- Ensure that you did not cease tax residency of South Africa. If such is the case, then a different process needs to be followed, and all income may be exempt.
- If the income surpasses R1,250,000, add up any foreign taxes paid as well. Research the tax laws in the foreign country to determine whether a tax return is required or if the PAYE deductions constitute the final tax liability in that country. Identifying these provisions in the foreign country’s tax laws is essential, as claiming such foreign taxes in South Africa can be a complicated process. Certain employers can provide confirmation of this through a letter, which, along with screenshots of the relevant legislation supporting this stance, is likely to be acceptable to SARS.
- Perform a tax calculation to verify any amounts owed to SARS. If there are any amounts owed to SARS, two additional returns, referred to as provisional tax returns, must also be completed. Learn more about provisional taxes by clicking here:
https://fmjfinancial.co.za/provisional-tax/
- Submit the return to SARS and upload the above documents during an audit. (SARS generally audits these returns to ensure all requirements are met).
- Respond to any of SARS questions or await the completion of your audit.
What Is Foreign Income Exemption?
Foreign income exemption is a tax relief mechanism that allows South African tax residents working abroad to exempt their foreign employment income or a portion of their foreign employment income from taxation in South Africa.
This exemption is governed by Section 10(1)(o)(ii) of the Income Tax Act.
Key Benefit:
- Up to R1.25 million per year of foreign employment income can be exempt from South African tax.
- If the limit is exceeded, foreign taxes paid in the other country can reduce the taxes owed in South Africa. We recommend using a tax professional because there are detailed and complex requirements to follow.
Important:
- You must still declare the income to SARS.
- Only qualifying income is exempt — not all foreign earnings. For instance, if an employee works both in a foreign country and in South Africa, only the work done in the foreign country would be eligible for the exemption.
Full SARS Requirements
Step-by-Step Breakdown
To qualify, ALL of the following must be met:
- You Must Be a South African Tax Resident
- This is non-negotiable. Non-residents will only pay tax on income earned from South Africa.
- SARS taxes residents on worldwide income.
- The exemption is specifically designed for residents working abroad.
- You Must Earn Employment Income
Qualifying income includes:
- Salary
- Wages
- Bonuses
- Allowances
Does NOT include:
- Rental income
- Dividends
- Business income
- The 183-Day Rule
You must be physically outside South Africa for:
- At least 183 days in any 12-month period
Important:
- Days do NOT need to be consecutive
- Travel days may count depending on timing
- The 60 Continuous Days Rule
Within the same 12-month period:
- You must be outside South Africa for 60 consecutive days
- Failure to meet this = automatic disqualification
Qualification Checklist
Requirement | Minimum Threshold | Proof Required | Common Failure |
Tax Residency | Must be a South African tax resident | Tax records, SARS correspondence, residency assessment | Incorrect assumption about tax residency status |
Foreign Employment | Income must qualify as “remuneration” as defined in the Income Tax Act | Employment contract, payslips, employer confirmation letter | Confusing independent contractor income with employment income |
Days Outside South Africa | At least 183 full days outside South Africa during any 12-month period | Passport stamps, travel logs, flight itineraries | Miscalculating days, counting departure and arrival days, or using the wrong 12-month period |
Continuous Period Abroad | At least 60 consecutive full days outside South Africa | Travel timeline, passport records | Mixing different 12-month periods or miscounting consecutive days |
How SARS Calculates Your Days
SARS uses a strict criterion.
Key Rules:
- Part of a day may not be count as a full day
- Travel records such as passport stamps are critical
- Flight tickets are not always sufficient
- Loss of a passport may lead to an inability to meet the required criteria (therefore, ensure you have updated photographs).
- Ensure that you possess a fully executed employment contract that officially designates you as an employee.
Risk Area:
Many taxpayers incorrectly assume:
- Services provided to a foreign employer while being physically present in South Africa qualifies as exempt income.
- That a taxpayer must remain outside of South Africa for a total of 183 full days, including a continuous period of 60 consecutive days, within a single tax year.
- That all foreign income earned is exempt. Only the income earned during periods spent outside of South Africa qualifies for the exemption. If employment was conducted both within and outside South Africa during the specified 12-month period, the income for that period must be allocated proportionately based on the number of working days spent in the foreign country compared to working days in South Africa. Only the segment of remuneration corresponding to the working days spent in the foreign country will qualify for exemption.
- By being outside of South Africa allows for the calculation of days to meet the 183-day and 60-day criteria. Days spent outside South Africa can only be counted if they occur under an employer-employee agreement and not, for instance, while on a holiday. A person thus may not count a day as part of the days requirement while not under an employment contract.
- It is not necessary to report foreign employment income to SARS if such income is exempt, nor is there any obligation to submit a tax return in such cases.
- If the exemption threshold of R1,250,000 is surpassed, a tax rate of 45% will be applied. An individual’s taxable income serves as the basis for their tax liability. If the income earned from foreign employment amounts to R1,500,000 and the taxpayer is eligible for an exemption of R1,250,000, the taxable income, assuming the absence of any additional deductions, will be R250,000. During the 2026 tax year, this amount will be taxed at a rate of 18% and 26% and the taxpayer will remain eligible for the primary rebate. Furthermore, through effective planning, taxpayers may potentially lower their taxable income by utilizing a retirement annuity and claiming foreign tax credits.
Example: Qualification Scenario (ZAR-Based)
- Annual salary abroad: R1,800,000
- Days outside SA: 210 days
- Working days in tax year 250
- Working days in foreign country 250
- Continuous days outside SA: 75 days
Outcome:
Component | Amount |
Total income | R1,800,000 |
Exempt portion | R1,250,000 |
Taxable portion | R550,000 |
Tax is only paid on R550 000, but this could further be reduced by other deductions.
What Documentation Does SARS Require?
You must be able to prove your claim.
Required Documents:
- Payslips
- Workings to show gross income and exchange rates used
- Passport copies
- A table of days during the 12-month period showing days outside of SA.
- A table of working days showing all working days in South Africa and all working days outside of South Africa during the identified 12-month period.
- Employment contract
- Proof of foreign taxes being a final tax charge in the foreign country.
Common Reasons SARS Rejects Claims
Issue | Impact |
Miscounted days | Full exemption denied |
No 60-day period | Disqualification |
Incorrect income classification | Full or partial rejection |
Poor documentation | SARS raises additional assessment disallowing exemption |
Advanced Insight: The R1.25 million Cap
This amount represents the maximum limit. SARS will only exempt foreign income up to this limit unless the individual is classified as a non-resident for South African tax purposes, has applied to SARS, and received approval.
If you earn above R1.25m:
- Any income in excess is taxed at normal SA rates
- Taxes paid in the foreign country may qualify to further offset any tax liability under section 6quat.
- Standard deductions, including retirement annuities remain allowed.
- If a taxpayer has a medical aid, the taxpayer will still receive the benefit of medical tax credits to offset taxes due to SARS.
- Any other income must still be added. For example, profits from a rental property, investment income, etc.
Planning Opportunity:
- Planning the start of the 12-month to be around mid-year rather than closer to the start of a new tax year.
- Structuring retirement funds to have additional deductions
- Planning for provisional taxes (Very important to avoid late payment penalties)
Collecting proof from the foreign country to confirm that any PAYE deducted constitutes a final tax charge, enabling further offsetting of tax liabilities using section 6quat credits.
Foreign Income Exemption vs Double Taxation Agreements
Key Difference:
Factor | Exemption | DTA |
Applies to | Employment income | All foreign sourced income |
Limit | R1.25m cap | No cap |
Use case | Working abroad | Avoid double taxation on all foreign sourced income |
Step-by-Step: How to Claim the Exemption
- Track all full days outside of SA while employed
- Confirm 183 + 60-day compliance
- Gather documentation
- Declare income in tax return
- Apply exemption under correct SARS code and claim foreign tax credits where possible.
Mistakes That Cost You Money
Mistake | Result | Fix |
Not declaring foreign income | Penalties | File return as soon as possible. |
Assuming exemption applies automatically | SARS estimated assessment deeming all income as taxable | File correctly within 40 days of estimated assessment. |
Ignoring documentation | Exemption disallowed. | Maintain records, lodge a notice of objection. (Use a tax practitioner to avoid costly litigation costs) |
What Happens If You Get It Wrong?
SARS penalties include:
- Understatement penalties (up to 200%)
- Underpayment penalties for provisional taxes.
- Interest charges, backdated to the due date which is 28 Feb each year. (Interest is charged from the due date, not the filing date when a taxpayer is a provisional taxpayer)
- Large additional assessments where an audit fails
- Costly litigation if the dispute is not dealt with within the correct procedures. (Link to page https://fmjfinancial.co.za/handle-your-objections/)
- Criminal prosecution (in extreme cases)
When You Should Use a Specialist
You should NOT DIY if:
- Not in the field of taxation. This aspect of tax law is intricate and can become very costly if rejected by SARS.
- Complex travel patterns
- Multiple income sources
- Previous SARS issues
Scenario
Offshore Employer:
- Works 5 months abroad, 7 months SA during any 12-month period.
- 150 continuous days outside SA.
- Earns R2.2m annually
Risk:
Met the continuous 60 days rule but fails 183 full day rule → loses entire exemption
Outcome:
Full income taxable
Decision Framework
Situation | Recommended Action |
Simple employment | Recommend use specialist |
High income | Specialist mandatory |
Complex travel | Specialist mandatory |
Exemption disallowed | Specialist mandatory |
Frequently Asked Questions
Do I still need to declare foreign income?
Yes. Always declare — exemption is applied for when submitting the return.
What happens if I miss 183 days by 1 day?
You lose the entire exemption.
Does the exemption apply automatically?
No — it must be claimed correctly.
Can I combine exemption and DTA?
Yes, but only if the taxpayer is a resident for part of the tax year and non-resident for the other part of the tax year.
What if I earn more than R1.25m?
The excess is taxed, but the taxpayer may still claim normal deductions and have medical tax credits and 6quat foreign tax credits applied to offset tax liability.
Can I qualify if I work remotely?
Only if physically outside SA and the agreement is an employer and employee relationship.
Do weekends count?
Yes, if outside SA and while under an employer and employee relationship.
Does SARS audit these claims?
Yes — frequently. The sum the taxpayer would owe when filing their return without the exemption serves as a strong incentive for an audit.
Can I backdate claims?
This applies only if the taxpayer submitted the return, there was no audit, and it falls within a three-year period from the original date of the assessment.
If the return was submitted and selected for audit, an objection must be lodged within 80 working days, unless there are reasonable grounds (allowing an additional 21 days) or exceptional circumstances justifying a further delay beyond the 21-day extension for filing the objection with SARS.
Link to objections
https://fmjfinancial.co.za/handle-your-objections/
If the return was estimated assessed, limited to 40 working days from such assessment, extendable up to 3 years if the taxpayer can provide evidence of exceptional circumstances causing the delay in submitting a correction.
What records should I keep?
- Payslips
- Workings to show gross income and exchange rates used
- Passport copies
- A table of days during the 12-month period showing days outside of SA.
- A table of working days showing all working days in South Africa and all working days outside of South Africa during the identified 12-month period.
- Employment contract
- Proof of foreign taxes being a final tax charge in the foreign country.