South Africa taxes its tax residents on their worldwide income, regardless of where the income is earned. For South Africans working abroad, this creates a potential double taxation situation. The foreign income exemption — commonly called the "expat tax" exemption — provides partial relief, but since 1 March 2020, it no longer provides complete protection.
The Old vs New Rules
Before 1 March 2020, South African tax residents who spent more than 183 days outside the country (with at least 60 consecutive days) could exempt all of their foreign employment income from South African tax. This was a full exemption.
From 1 March 2020, the exemption was capped at R1.25 million per year. Any foreign employment income above R1.25 million is now taxable in South Africa, even if you meet all the requirements for the exemption. This change affected many South Africans working in tax-free or low-tax jurisdictions like the UAE, Saudi Arabia, and certain Asian countries.
Qualifying for the Exemption
To qualify for the R1.25 million foreign income exemption, you must meet all of the following requirements during any 12-month period starting or ending during the tax year:
- You must be a South African tax resident
- You must have spent more than 183 full days outside South Africa
- Of those days, at least 60 must have been continuous (consecutive days outside SA)
- The income must be from employment services rendered outside South Africa
If you meet these requirements, the first R1.25 million of your foreign employment income is exempt from South African tax. Any amount above this is taxable at your marginal rate.
What Income Is Covered?
The exemption only applies to foreign employment income — that is, salary, bonuses, allowances, and other remuneration from employment services performed outside South Africa. It does not cover:
- Investment income (dividends, interest, capital gains)
- Rental income from South African property
- Business income from a sole proprietorship
- Director's fees
- Pension or annuity income
Double Tax Agreements
South Africa has Double Tax Agreements (DTAs) with many countries. If you are working in a country with a DTA, the agreement determines which country has the primary right to tax your income. In most cases, the country where you perform the work has the first right to tax your employment income.
If you pay tax in the foreign country, you can claim a foreign tax credit in South Africa to avoid being taxed twice on the same income. The credit is limited to the amount of South African tax attributable to the foreign income.
Practical Example
Suppose you work in Dubai (no income tax) and earn R2 million per year. Under the current rules:
- Foreign employment income: R2,000,000
- Exemption: R1,250,000
- Taxable in South Africa: R750,000
- South African tax on R750,000 (at marginal rates): approximately R168,000
Before the 2020 change, this entire R2 million would have been exempt. Now you face a significant South African tax bill.
Options for Expats
If the expat tax is creating a significant liability, you have several options. First, you can financially emigrate by ceasing to be a South African tax resident. This involves a formal process through the South African Reserve Bank and has its own tax consequences (including an exit charge on worldwide assets). Second, you can structure your remuneration to include more non-cash benefits. Third, you can ensure you are claiming all available deductions and tax credits. Fourth, you can time your return to South Africa to maximise the exemption period.
Use our expat tax calculator to estimate your South African tax liability on foreign income.