Seafarers versus SARS
As most know by now, SARS is grappling to increase revenue for their coffers, looking to South Africans who earn foreign income to subsidise the deficit. As of 1 March 2020, the amended exemption on foreign employment income, being section 10(1)(o)(ii) of the Income Tax Act No. 58 of 1962 (“the Act”), will come into effect, thus limiting the exemption to R1 million. SARS knows that seafarers are likely not paying tax elsewhere on their foreign earnings and are often not resident anywhere, likely making them remain resident of South Africa, and thus giving South Africa taxing rights on that foreign income.
Complexities for Seafarers
The position of seafarers is more complex than the standard foreign employee in that South African tax law provides for three different categories of exemption, which can be applied for on foreign income. Lauren Norton, Director at Trilogy Luxury Training, advised that, “there are various categories that a seafarer may fall into, each with their own unique situation, most are unaware of these differences, this often creates uncertainty and a tendency for people to get the wrong advice. Uncertainty also creates anxiety in people, when in fact once you understand your personal situation it is easily dealt with and provides you with options to take positive steps forward, especially if you have the right professionals to help you. This is often something I need to help people untangle on a daily basis and help them feel confident that they understand their situation and they are on the right track. Speaking from personal experience this is something you do not want to let slide under the carpet. ”.
Even where seafarers work alongside their colleague, one could be exempt from tax in SA, while the other taxable. Something as simple as the mere position held by the seafarer, or the title on the vessel can affect this. Thus, seafarers need to understand the law and how it applies to their individual circumstances to be able to protect their foreign earned income.
The Three Categories
The three categories are set out below, in which a seafarer could fall into and possibly claim exemption:
- Section 10(1)(o)(i)(aa) of the Act (“the first seafarer exemption”) – this exemption relates to officers or crew members onboard a vessel, for foreign employment, which includes the international transportation of passengers/goods for reward. Meeting the requirements of this exemption allows for full exemption from tax in SA on the foreign employment income earned; and
- Section 10(1)(o)(i)(bb) of the Act (“the second seafarer exemption”) – this exemption relates to officers or crew members onboard a vessel, and that vessel is engaged in prospecting, exploration or mining of minerals, or production of minerals, from the seabed outside of South Africa. This exemption only relates to those seafarers solely employed for the safe passage or navigation of the vessel. Meeting the requirements of this exemption allows for full exemption from tax in SA on the foreign employment income earned; and
- Section 10(1)(o)(ii) of the Act (“the expat exemption”) – this is the exemption that applies to South African taxpayers who earn foreign employment income and meet the requirements thereof. This has been amended, with the effective date of the amendment being 1 March 2020, whereby only the first R1 million can be exempted with the surplus being taxable in SA.
Donne Trump, consultant from Seafarers Global mentioned that, “There are certain golden rules that seafarers must comply with, which will ensure claiming exemption under one of the three categories is made simpler and easier.” These rules are of course the starting block for being successful in protecting foreign earned income. Trump advised that the golden rules are that one must ensure that:
- one is duly registered for tax with SARS;
- being tax compliant on record does not mean you have a tax liability – the two should not be confused;
- tax statuses are always kept up to date and compliant, as many institutions now require a Tax Clearance Certificate;
- a full copy of one’s passport, employment contract and vessel register are kept on hand for tax return submissions; and
- declaration of worldwide income is done correctly, and not only South African sourced income is declared.
Importantly, and which can make or break a tax claim for exemption, is one’s employment contract. If unsure whether your employment contract meets the minimum requirements to have a successful claim for exemption, a good idea is to have this professionally reviewed. You can make contact with https://www.seafarersglobal.com/ who will provide such assistance.
Taking into consideration having to navigate three categories of exemption which are often highly scrutinised by SARS, the best solution is to get your ducks in a row as soon as possible. This means taking into account the golden rules first, and ensuring that these are in good order, to make for safe passage going forward.