Where an employee renders services abroad, the income earned while abroad may qualify for an exemption from PAYE if the relevant criteria are met. SimplePay has a system item for Foreign Service Income which should be used to ensure compliance with SARS reporting.
To apply this system item to an employee:
- Go to the employee’s profile.
- Click on Add (next to Regular Inputs) and select Foreign Service Income under Other.
- If you are satisfied that the employee meets the criteria for the foreign service tax exemption (see below) to be granted, click the relevant tickbox. This will ensure that only non-foreign income earned is taxed, while foreign income earned is not subject to tax. Leaving this unticked will result in both foreign and non-foreign income being taxed.
- Click Save.
All income on the employee’s payslip will now change to foreign service income. To record non-foreign income earned, refer to the section below. If the tax exemption checkbox was applied, all income on the payslip will be exempt from tax. If the checkbox wasn’t applied, the tax will remain unchanged.
Foreign Service Tax Exemption
Where the employer is satisfied that an employee will meet the necessary criteria for a Foreign Service Exemption to be granted, the employer is at liberty to not deduct PAYE from any remuneration derived by the employee in respect of services rendered outside the Republic. To qualify, the employee must have rendered services for the employer outside the Republic for :
- A period or periods exceeding 183 full days in aggregate during any 12 month period; and
- Continuous period exceeding 60 full days during that period; and those services were rendered during that period or periods.
The employer must keep a copy of each page of the employee’s passport and a copy of the relevant contract for the services to be rendered in a foreign country. Should it transpire that the employee does not qualify for the exemption; the employer will be held personally liable for any losses that SARS may suffer due to the non-deduction of the full amount of employees’ tax.
You can read more about the foreign income tax exemption in the following SARS document:
Interpretation Note No. 16: Exemption from Income Tax: Foreign Employment Income
Since the release of the above Interpretation Note, the exemption of foreign income is now capped at R1.25 million per year. Any foreign employment income earned over and above R1.25 million will be subject to tax for the particular year of assessment.
Non-Foreign Income
To add non-foreign income to a payslip:
- Click on Foreign Service Income under Payslip Inputs. Please note that this will only be available once the Foreign Service Income system item has been applied to the payslip, as outlined above.
- Enter an amount for the non-foreign income earned for the current period.
- Click Save.
Note: Local income earned is subject to income tax and therefore is taxable, regardless of whether or not the employee qualifies for the Foreign Service Tax Exemption.
Reporting
All non-foreign service income recorded under Payslip Inputs will be recorded on the employee’s IRP5 under the usual codes such as 3601, 3605 etc., while all remaining foreign service income will be recorded using the foreign equivalent codes such as 3651, 3655 etc.