If you are a South African working abroad, there is a good chance you have heard of the foreign income exemption South Africa offers to expats. The R1.25 million exemption is the single most important tax break available to SA expats. But most people get the details wrong, and those details determine whether SARS taxes you or leaves you alone.
The exemption lives in Section 10(1)(o)(ii) of the Income Tax Act. In plain English, it says that the first R1.25 million of your foreign employment income is exempt from South African tax, provided you meet specific requirements. Anything above R1.25 million gets taxed at your normal marginal rate in South Africa.
This guide explains exactly how the foreign income exemption South Africa provides under Section 10(1)(o)(ii) works, who qualifies, what income counts, how to calculate the exempt portion, and the mistakes that can cost you the entire benefit.
What the Foreign Income Exemption South Africa Offers (and What It Does Not)
The exemption protects your foreign salary from South African tax, up to a point. If you earn less than R1.25 million from your overseas job, and you meet the requirements, SARS will not tax that income at all. If you earn more than R1.25 million, only the first R1.25 million is exempt and the rest is taxable in South Africa at your normal rates.
Here is what the exemption does not do. It does not make you a non-resident. It does not remove your obligation to file a tax return. It does not cover investment income, rental income, or self-employment income. And it does not apply automatically. You have to claim it on your ITR12 return using the correct source codes and prove you meet the requirements.
Before 1 March 2020, the foreign income exemption South Africa had in place was uncapped. All qualifying foreign employment income was fully exempt. The R1.25 million limit was introduced to close what SARS considered a loophole that allowed “double non-taxation” in cases where the foreign country imposed little or no tax. The qualifying requirements themselves did not change.
For the full picture on all your obligations as a South African abroad, see our complete guide to South African expat tax.
The Six Requirements to Qualify
You must meet all six of these to claim the exemption. Miss even one and SARS can deny the entire benefit.
| # | Requirement | What It Means |
|---|---|---|
| 1 | You must be a SA tax resident | The exemption only applies to people who are still tax residents of South Africa. If you have already ceased your tax residency, you do not need this exemption because SARS only taxes you on SA-sourced income anyway. |
| 2 | You must be an employee | You must work under an employment contract. Independent contractors, freelancers, and self-employed people do not qualify. Directors earning directors’ fees (as opposed to a salary) also do not qualify. |
| 3 | The income must be remuneration | Only specific types of employment income qualify. Investment income, rental income, business profits, and capital gains are all excluded. |
| 4 | Services must be rendered outside SA | “Outside the Republic” means beyond South Africa’s borders, including its territorial waters (12 nautical miles from the coastline). Work done remotely from within SA does not count. |
| 5 | 183 days outside SA in 12 months | You must be physically outside South Africa for more than 183 full days (in total, not necessarily consecutive) during any 12-month period. |
| 6 | 60 continuous days outside SA | Within that same 12-month period, at least 60 of those days must be continuous. You cannot break this stretch by popping back to SA for a week in the middle. |
For a detailed breakdown of the days tests and how they work in practice, see our dedicated guide on the SARS 183 day rule.
What Types of Income Qualify?
The exemption covers a specific list of employment income types. SARS defines “remuneration” for this purpose as salary, leave pay, wages, overtime pay, bonuses, gratuities, commissions, fees, emoluments, and allowances (including travel allowances, advances, and reimbursements). It also includes taxable fringe benefits calculated under the Seventh Schedule, amounts from broad-based employee share plans under Section 8B, and gains on vesting of equity instruments under Section 8C.
That is a broad list, but it still has clear boundaries. Here is what does not qualify.
| Qualifies for Exemption | Does NOT Qualify |
|---|---|
| Salary and wages | Self-employment or freelance income |
| Bonuses and overtime | Directors’ fees (in capacity as director) |
| Leave pay and gratuities | Business or trading profits |
| Commissions and fees (employment) | Rental income |
| Travel and other allowances | Interest and dividends |
| Taxable fringe benefits | Capital gains |
| Share plan gains (Section 8B/8C) | Severance or termination payments |
One important detail that catches people out. Severance and termination payments do not qualify. These are payments for the loss of employment, not for services rendered. SARS draws a clear distinction between “income for work done” and “income for work ending.” The exemption only covers the first category.
Who Is Excluded?
Even if you meet all six requirements and earn qualifying income, two categories of employees are specifically excluded from the exemption.
Public office holders who are appointed or deemed to be appointed under an Act of Parliament cannot claim the exemption. This includes Members of Parliament, judges, and other constitutionally appointed positions.
Government employees working in the national, provincial, or local sphere of government, constitutional institutions, national and provincial public entities listed in Schedules 2 and 3 of the Public Finance Management Act, and municipal entities are also excluded. If you work for a state-owned enterprise or a government department, the exemption does not apply to you, even if you are posted overseas.
Everyone else who meets the requirements can claim. It does not matter whether your employer is a South African company or a foreign company. The exemption applies to services rendered for “any employer,” which includes both resident and non-resident employers.
The 12-Month Rolling Period
This is where things get tricky and where most mistakes happen. The 183-day and 60-continuous-day tests are measured over any 12-month period, not the tax year. This is a critical distinction.
The SA tax year runs from 1 March to 28/29 February. But the 12-month period for the exemption can start on any day of any month and run for 12 months in either direction. You can look both forwards and backwards from any date. This means periods can overlap, and you can test multiple 12-month windows to find one that works.
Example: The Rolling 12-Month Window
Let’s say you left South Africa on 15 June 2025 and did not return at all during the rest of the year. By 15 June 2026, you have been outside SA for 365 days straight.
You clearly meet both the 183-day test (365 days is more than 183) and the 60-continuous-day test (365 consecutive days is more than 60). You can pick any 12-month window that includes this period.
But let’s say you flew back to SA for 3 weeks in December 2025. Now your continuous days outside SA are broken into two chunks. You need to find a 12-month window where you were outside SA for 183+ days total AND had at least one unbroken stretch of 60+ days. The window 15 June 2025 to 14 June 2026 might still work if your December trip did not break the 60-day continuous requirement (because you may have had 60+ continuous days between June and December, or between January and June).
The ability to use any 12-month period is powerful, but it also means you need to keep careful records. SARS can and does verify travel dates with the Department of Home Affairs.
How to Calculate the Exempt Amount
If you worked entirely outside South Africa during the relevant period, the calculation is simple. Your total foreign employment income up to R1.25 million is exempt. Anything above R1.25 million is taxable.
But if you worked partly inside and partly outside South Africa during the year, you need to apportion your income. SARS uses a specific formula for this.
The SARS Apportionment Formula
Work days outside SA / Total work days x Total remuneration = Exempt portion (capped at R1.25 million)
“Work days” means actual days of service. Weekends, public holidays, and leave days are excluded from both the numerator and the denominator. Only days where you actually performed work count.
This formula matters because a common misconception is that all income earned during a qualifying period is exempt. That is incorrect. Only the income that relates to services actually rendered outside South Africa qualifies. If you spent 3 months of your year working from the SA head office, that portion of your income is fully taxable in SA, regardless of the exemption.
There is one important exception. If the work you did inside South Africa was “merely casual and accidental” or “subsidiary and incidental” to your foreign assignment, SARS accepts that the entire income source is foreign and no apportionment is needed. For example, if you flew back to Johannesburg for a single 2-day meeting during a year-long London posting, SARS would likely treat the full income as foreign-sourced.
Worked Example: Apportionment With Leave Days
Thabo is employed by a South African company and works in various African countries. During the 2026 year of assessment (1 March 2025 to 28 February 2026), he meets the 183-day and 60-continuous-day tests. His total work days for the year are 250. He took 15 days of annual leave (10 days while in SA and 5 days while abroad).
After removing the leave days, his adjusted total work days are 235. Of those, 140 work days were spent outside South Africa.
His total remuneration for the year is R1,450,000.
Exempt portion = 140/235 x R1,450,000 = R863,830
Since R863,830 is below the R1.25 million cap, the full amount is exempt. The remaining R586,170 (earned for services rendered in South Africa) is fully taxable at normal rates.
What Happens Above R1.25 Million
If your qualifying foreign income exceeds the foreign income exemption South Africa caps at R1.25 million, the excess is taxable in South Africa at your normal marginal rate. But you do not have to pay tax twice. Section 6quat of the Income Tax Act provides a foreign tax credit for taxes you paid in the other country on the same income.
The credit is limited to the lesser of the actual foreign tax you paid and the SA tax attributable to that foreign income. In practice, because most developed countries have tax rates similar to or higher than South Africa’s, the foreign tax credit usually wipes out the SA liability on the excess entirely.
Worked Example: Above the R1.25 Million Cap
Nadia works in London earning GBP 80,000. At an average exchange rate of R23.50/GBP, her total foreign employment income is R1,880,000. She meets all the qualifying requirements and worked entirely outside SA.
The first R1,250,000 is exempt under Section 10(1)(o)(ii).
The excess of R630,000 is taxable in South Africa.
Using the 2026 tax tables, the SA tax on R630,000 (after applying the full tax table and subtracting the primary rebate of R17,235) is approximately R152,887.
But Nadia paid UK income tax on her full GBP 80,000. The portion of UK tax attributable to the R630,000 excess (roughly 33.5% of her UK tax) amounts to approximately R167,000. Since the UK tax exceeds the SA tax on the same amount, her Section 6quat credit fully offsets her SA liability. She owes SARS nothing on the excess.
She does not get a refund for the difference. The credit is limited to the SA tax payable, not the full foreign tax paid.
Impact on UIF and SDL
Any income that is exempt under Section 10(1)(o)(ii) no longer counts as “remuneration” for purposes of the Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions. This is because the definition of “remuneration” in the Fourth Schedule of the Income Tax Act is based on “income,” and “income” by definition excludes exempt income.
In practical terms, this means your employer should not be deducting SDL or UIF on the exempt portion of your foreign income. If they are, it is worth raising with your payroll department or tax advisor.
How to Declare the Foreign Income Exemption on Your Tax Return
When you file your ITR12 return on eFiling, you need to use the correct source codes. Getting these wrong is one of the most common reasons SARS denies the exemption.
| Source Code | Description |
|---|---|
| 3651 | Gross salary earned outside South Africa |
| 3655 | Foreign bonus payments |
| 3860 | Foreign medical aid contributions |
| 4587 | Section 10(1)(o)(ii) exemption amount (capped at R1.25 million) |
Do not use source code 3652 for any foreign income that you want to claim the exemption on. SARS has explicitly stated that if foreign income is disclosed under code 3652, the exemption will not be applied during assessment. Each type of foreign remuneration must go under its own specific foreign source code (3651 for salary, 3655 for bonuses, and so on). The exempt portion then goes under code 4587, limited to R1,250,000.
If your employer applied the exemption through payroll (using a Section 10 directive from SARS), code 4587 should already appear on your IRP5 certificate. If your employer did not apply it through payroll, you claim it yourself when you file your return.
Convert all foreign currency amounts to rands using the SARS average exchange rate for the year of assessment. These rates are published on the SARS website.
Is the Foreign Income Exemption the Same as Not Being a Tax Resident?
No, and this is a critical point. The Section 10(1)(o)(ii) foreign income exemption does not change your tax residency status. You are still a South African tax resident. SARS still has the right to tax you on your worldwide income. The exemption simply reduces the amount of that income that is actually taxable.
If you want to stop being a SA tax resident entirely, you need to formally cease your South African tax residency. That is a different process with different consequences, including the exit tax (a deemed disposal of your worldwide assets for capital gains purposes).
Many expats use the Section 10(1)(o)(ii) exemption as a holding strategy. They keep their SA tax residency, claim the exemption on their foreign salary, and avoid triggering exit tax. This works well if your foreign salary is under or close to R1.25 million. If you are earning significantly more than that, the calculation starts to shift in favour of ceasing residency, especially if you do not plan to return to South Africa. For a comparison of both approaches, read our guide on financial emigration from South Africa.
Common Mistakes That Cost You the Exemption
1. Using the wrong source code on your return
If you put your foreign salary under code 3652 instead of 3651, SARS will not apply the exemption on assessment. This is the single most avoidable mistake and it happens constantly.
2. Miscounting your days
A “full day” means a complete 24-hour period from midnight to midnight. Your departure day and arrival day in SA may not count as full days outside the country. And the days must be during a period of employment. Days outside SA when you are unemployed (between contracts, for example) do not count.
3. Breaking the 60-day continuous requirement
Flying back to SA for a 2-week December holiday can break your 60-continuous-day streak. You need to make sure you have at least one unbroken stretch of 60+ full days outside SA within the same 12-month period you are using for the 183-day test.
4. Assuming rest periods break continuity
If you work rotational shifts (for example, 28 days on and 28 days off on an oil rig), your rest periods do not break the continuous period of employment. As long as you remain employed and outside SA during your rest days, those days count. SARS has confirmed this in their interpretation notes.
5. Claiming it on non-qualifying income
The exemption only covers employment income. If you also earn rental income from a property in SA, interest from a foreign bank, or capital gains from selling shares, those are taxed separately and cannot be sheltered by this exemption.
6. Not filing at all
Some expats assume that because their income is exempt, they do not need to file a return. Wrong. You still need to declare the income and claim the exemption on your ITR12. If you do not file, SARS does not know you qualify, and they can issue estimated assessments or penalties for non-compliance.
What If You Also Have a DTA?
The Section 10(1)(o)(ii) exemption and a Double Taxation Agreement are two separate relief mechanisms. They can work together, but they address different problems.
The exemption reduces the amount of foreign income that is taxable in SA. A DTA determines which country has the primary right to tax specific types of income and provides credits to avoid double taxation. If your foreign income exceeds R1.25 million, the DTA (via Section 6quat credits) ensures you do not pay tax twice on the excess.
You can claim both. First, the exemption reduces your taxable foreign income. Then, if there is still a SA tax liability on the amount above R1.25 million, the foreign tax credit under the DTA reduces or eliminates it.
The foreign income exemption South Africa grants under Section 10(1)(o)(ii) is the most powerful tool in the SA expat tax toolkit, but only if you use it correctly. Track your days, use the right source codes, keep your employment records, and file your return every year. If you do those things, SARS will leave the first R1.25 million of your foreign salary alone.
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.