Resolving double non-taxation : issues regarding the foreign employment income exemption in South Africa

Prior to 2001 South Africa applied the source-based tax system. From the years of assessment commencing on or after 1 January 2001, South Africa introduced the residence-based tax system. The introduction of residence-based income tax means that South African residents are liable for tax based on their worldwide income. Worldwide taxation may result in double taxation if the resident of a state earns income from another contracting state which believes it has the taxing rights to the same income. Relocation to other countries for work purposes has become very popular amongst many young South Africans. It is therefore important to determine how South Africa treats its global citizens. It is worth examining the current tax treatment of residents who earn employment income from abroad before deciding to relocate for work purposes. The resident must be in an employee-employer relationship on a contract basis in a foreign country. When South Africa changed its tax system from a “source-based” to a “residence-based” tax system in 2001, section 10(1) (o) (ii) of the South African Income Tax Act was introduced to eliminate double taxation for South African residents in foreign employment because of that income being taxable in both South Africa and the source state. That could be the case where South African residents are liable for tax on their worldwide income and that income may also be taxed in the source country abroad. Unfortunately, the Section 10 exemption has been abused by many South African tax residents who relocate to jurisdictions which do not levy personal income tax. The current exemption results in double non-taxation as in the instances mentioned above. The purpose of this research is to find out how double non-taxation resulting from the exemption of foreign employment income can be resolved. To answer this question, this work discusses the root cause of double non-taxation of foreign employment income in South Africa for South African residents. The South African government has decided to amend the section 10(1)(o)(ii) r exemption to resolve the issue of double non-taxation. The amendment also takes into account the properties of a good tax system which are discussed in this study. A good tax system can be defined as a system that focuses on the generation of sufficient revenue to finance the budgeted government expenditure. The current exemption section has been criticized for being unfair as it excludes employees in the public sector. The amendment to section 10(1) (o) (ii) which will be effective from 1 March 2020 will rectify this issue as it proves to be fair and fairness is a property of a good tax system.

Grantor dc:publisher

University of Pretoria

Year dc:date.issued

2019

Advisor dc:contributor.advisor

• Ogutu, Annet Wanyana

• UCTD
• Sustainable Development Goals (SDGs)
• Foreign employment income
• Employee
• Employer
• Double taxation
• Residence based taxation
• Double non-taxation

Statement dc:rights

• © 2024 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Language dc:language.iso

en

DOI

None

Dc Identifier Other

A2020

OAI identifier oai:identifier

oai:repository.up.ac.za:2263/110616