If you work for a multinational or a tech company and you receive share options, RSUs (Restricted Stock Units), or other equity-based compensation, your South African tax position gets complicated fast. Section 8C of the Income Tax Act governs how SARS taxes “restricted equity instruments,” and the rules interact in specific ways with the R1.25 million exemption and the deemed disposal on ceasing residency.
This guide explains how share options and equity for South African expats work under Section 8C, including the vesting trigger, apportionment rules, and what happens when you leave South Africa.
What Section 8C Covers
Section 8C applies to equity instruments acquired by virtue of employment or the holding of an office that are subject to restrictions (vesting conditions). This includes stock options granted by your employer, RSUs that vest over time, shares acquired at a discount with a restriction period, and similar equity-based compensation.
The key principle is that the gain on a Section 8C instrument is taxed as income (not capital gains) at the time the restrictions are lifted (the “vesting date”). The gain is the difference between the market value of the shares on vesting date and the amount you paid for them (if anything). This gain is included in your “remuneration” for the year and taxed at your marginal income tax rate.
How Vesting Abroad Affects Share Options for South African Expats
If you were granted share options while working in South Africa but the shares vest while you are working abroad, SARS applies an apportionment based on the period of service inside and outside SA. The portion of the gain attributable to services rendered in South Africa is taxable in SA. The portion attributable to services rendered abroad may qualify for the R1.25M exemption (if you meet the 183-day and 60-day requirements) or for Section 6quat relief.
The apportionment is typically calculated on a time basis. If you were granted options on 1 January 2023 and they vest on 1 January 2027 (4 years), and you worked in SA for 2 of those 4 years and abroad for the other 2, then 50% of the gain is SA-source and 50% is foreign-source.
RSUs and the R1.25M Exemption
RSU vesting gains are included in “remuneration” under the Fourth Schedule. If you are working abroad as an employee and the RSUs vest while you are abroad, the foreign-source portion of the gain can potentially be included in the R1.25M exemption calculation, provided you meet all the requirements of Section 10(1)(o)(ii). However, this is a complex area and SARS’s interpretation can be strict. Get professional advice on the specific treatment of your equity compensation.
What Happens When You Cease Residency
Section 8C(4) provides that if you cease to be a SA tax resident while holding unvested restricted equity instruments, a deemed vesting is triggered. This is an important consideration for share options held by South African expats planning to formally exit the SA tax system. SARS treats you as if the restrictions were lifted on the day before cessation, and the gain up to that point is taxed as income in the year of cessation.
The market value on the day before cessation becomes your “proceeds” for the deemed vesting. After cessation, any further gain on the shares (from the cessation date to actual vesting or sale) falls outside the SA tax net (assuming you are no longer a SA tax resident).
Worked Example: RSU Vesting for an Expat
Naledi was granted 1,000 RSUs by her employer on 1 March 2023 while working in Johannesburg. The RSUs vest over 4 years (250 per year). She moved to London on 1 September 2024. The grant price was R0 (RSUs granted at no cost).
Year 1 vesting (March 2024): 250 RSUs vest. She was in SA the entire vesting period. 100% SA-source. Market value R150 per share. Gain = 250 x R150 = R37,500. Fully taxable in SA as income.
Year 2 vesting (March 2025): 250 RSUs vest. She was in SA for 6 months and abroad for 6 months of the vesting period. 50% SA-source (R18,750) and 50% foreign-source (R18,750). The foreign portion may qualify for the R1.25M exemption if she meets the days tests. Market value R180 per share. Total gain = R45,000.
The SA-source portion is taxed in SA. The foreign-source portion is either exempt (if within R1.25M) or subject to Section 6quat credit.
Stock Options vs RSUs vs Restricted Shares
Stock options give you the right to buy shares at a predetermined price (the exercise price). The Section 8C gain is the market value on exercise date minus the exercise price. RSUs are a promise to deliver shares at a future date, subject to vesting conditions. The gain is the full market value on vesting date (since you paid nothing). Restricted shares are shares you receive immediately but cannot sell until restrictions lift. The gain is market value on restriction-lifting date minus what you paid. All three are caught by Section 8C and taxed as income on the relevant trigger date.
Practical Steps for Share Options as a South African Expat
Track your grant dates, vesting dates, and service locations. You need to know exactly where you were working during each vesting period to calculate the apportionment correctly.
Get your employer’s equity plan documentation. The plan rules determine the exact nature of the instrument (option, RSU, restricted share) and the vesting conditions. SARS may request these documents.
Consult a specialist. Section 8C is one of the most complex areas of SA tax law, and the interaction with the foreign income exemption and deemed disposal rules adds further layers. This is not an area to navigate without professional advice. You can check SARS’s own guidance on Section 8C through the SARS website.
For the complete picture, start with the complete guide to South African expat tax.
This guide is for information only and does not constitute tax advice.
Tax and exchange control laws change frequently. Always consult a qualified tax professional before making decisions about your South African tax obligations.