As the changes to South Africa’s foreign earned income tax exemption draw ever closer, there is a swarm of confusion and misinformation circulating through South African expats.
This is especially true for crew members about how they will be affected by the upcoming income tax changes.
In this article, we lay down the facts behind the changes that are coming into effect on 1 March 2020, and how these will affect you so that you know where you stand.
Read on to find out more or click a jump link below to skip to a chapter of your choice.
- Determining Your Tax Residency Status
- Who Is Eligible For The Income Tax Exemption?
- Time Constraints
- What If You Work On Board A South African Registered Vessel?
- Speak to Us or Comment!
This article is based on changes to the South African income tax system with reference to Interpretation Note 34 (Issue 2) published by SARS on 27th February 2017, and only applies to South African tax residents.
Broadly, the legislation states that South African tax residents will be liable for taxation of their foreign income over the 1 million Rand (ZAR) tax free threshold at a rate of up to 45%.
Some sources have interpreted that these changes will bring an end to South African yacht crew being exempt from taxation, however certain qualifying requirements will remain meaning that this is not the case for many crew members.
Determining Your Tax Residency Status
In order to be eligible for the income tax exemption in South Africa, you must first ensure that you are a tax resident.
SARS have very clearly outlined what constitutes a South African tax resident in two simple tests:
Ordinary Resident Test
You will be deemed a tax resident if you are seen to treat South Africa as your home as any “ordinary resident” would.
In order to assess this, the South African Revenue Service (SARS) will assess your ties to South Africa and the strength of these ties.
A non-exhaustive list of example ties that may be assessed can be found below:
- Your habitual abode
- Your individual status in the country
- Location of your personal belongings
- Time spent abroad
- Frequency of and reasons for visits.
Physical Presence Test
You will qualify as resident of South Africa for tax purposes if you were physically present in South Africa for:
- 91 days in total during the year of assessment under consideration;
- 91 days in total during each of the five years preceding the year of assessment under consideration;
- 915 days during those five years preceding the current year of assessment.
If you are unsure about your South African residency status, try one of our South African Residency Tests today.
Who Is Eligible For The Income Tax Exemption?
In order to maintain clear boundaries around who may and may not claim the exemption, SARS have published guidelines to clarify who can be seen to be a crew member in their view.
For the purposes of claiming the exemption, a bona-fide crew member is regarded as a person employed as an officer or crew member of a ship* engaged in:
- International transportation for reward of goods and/or passengers, or
- The navigation of a ship, or
- For the purpose of exploration where the officer of such ship is employed solely for purposes of the passage of such ship.
Any South African tax resident crew member who meet the above requirements will still be entitled to declare their employment income to SARS without incurring a tax liability post March 2020.
The term ship is defined in courts as: "...any watercraft liable to move, steer and do normal navigation as usual."
An important note is that the ship must be guided by the International Maritime Law.
If you are lucky enough to meet the aforementioned eligibility criteria, you must ensure that you also meet the time constraints associated with the income tax exemption.
In order to be eligible, you must be out of the South African borders on an employment contract for a minimum of 183 full 24-hour days from 1st March 2020 (when the new legislation becomes active) to 28 February 2021 (these dates coincide with the South African tax year).
Any time spent outside of South African borders before 1st March 2020 cannot be used towards your qualifying period.
SARS have looked kindly upon crew members due to the nature of your employment circumstances and have decided that eligible crew members are not required to spend 60 continuous days outside of South Africa in the same way that non-crew members do to secure their eligibility.
What If You Work On Board A South African Registered Vessel?
Further to the above, crew members who work onboard South African registered vessels will also be fully exempt from income tax, provided that:
- It is a South African flagged ship; and is
- Mainly engaged in international traffic or fishing
However, an important distinction here is that if you meet the above qualifying conditions, there is no requirement to spend a specified period of time outside of South African borders/territories as with the aforementioned exemptions.
Whilst other sources may suggest that registering for tax in South Africa is an advisable course of action, this may not be the case in your circumstances.
Speak to Us or Comment!
If you would like a clear explanation of your individual position and what you need to do next, we would like to hear from you. Use our tax consultation service, get in touch with us or let us know your thoughts in the comments section below.
Liked this article? Try reading:
Breaking News: Changes to Foreign Earned Income Tax Exemption in South Africa
Any advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.