THE BASICS
Here are the important and detailed explanation of the basics, remember we are here to help you through the below as each individual has different needs.
Employment status – critical for tax exempt status and minimisation of taxes
The tax exemption on your earnings and benefits provided on the vessel, including South Africa and many other countries, only applies where you can evidence (provide proof of) an employer / employee relationship. Whilst there are different tax rules for workers who are part of the passage of the vessel and those who perform other work on the vessel, the employment requirement remains critical for both these tax exemptions. There are different rules for crew working on luxury yachts, to entertainment or salon crew on cruise ships, to other operational crew, and we know them!
You need to be registered and submit a Tax return in the country you call home, this does not necessarily mean you will pay tax on your salary.
Failure to submit a tax return can be seen as evading tax, a criminal offence that can incur time in jail and hefty fines.
UNPACKING YOUR TAX OBLIGATIONS
A South African seafarer who remains tax resident in South Africa is taxed on their worldwide income, including their salary earned offshore. Even if the seafarer spends most of the year at sea, or does not pay tax in another country, they are still legally required to submit an annual South African tax return and fully disclose their foreign employment income.
While certain exemptions may apply to foreign remuneration, these tax relief measures are subject to specific legislative requirements and do not automatically apply to all seafarers. Factors such as the type of vessel, the waters in which it operates, and the individual’s role or title onboard can affect eligibility for relief. This means that your colleagues may qualify for relief you may not qualify for.
If no exemption applies, your worldwide income will be fully taxable in South Africa at normal marginal rates. It is therefore essential that seafarers properly assess their exemption position and ensure full tax compliance to avoid unexpected tax exposure.
FREQUENTLY ASKED QUESTIONS
Our specialists have compiled and answered some of the burning questions that our seafarer clients frequently ask. Please note that these answers are specific to the question posed and may differ from person to person depending on your exact circumstances. We encourage you to schedule a consultation to obtain more pertinent advice on your situation.
Click here to read about our holistic solutions for seafarers.
I was under the impression that working offshore was tax free?
Many Seafarers are under the assumption that they are non-taxable in South Africa, however, this is not always the case. One needs to consider tax laws and most importantly your tax residency as this will be the first step to govern your tax liabilities.
How will relevant International Revenue Authorities ever find out about my foreign earnings?
We are often approached by seafarers who confidently believe that their earnings are “hidden” from revenue authorities – this is not the case. There are hundreds of Jurisdictions that have agreed to and signed the OECD’s “Common Reporting Standard” (CRS), which means they are now obligated to obtain pertinent financial information from their financial institutions and automatically exchange this with other jurisdictions on an annual basis. Put simply, if you are living in a jurisdiction that has to comply with CRS, then your financial information will be shared with the relevant Revenue Authority. Click here for a list of countries.
I am South African working at sea for a few years now, but never paid tax nor thought of the consequences, what should I do?
As a first step, it is important to determine if you are tax resident of South Africa, as laid out by the two tax residency tests:
Click here to download the Ordinarily resident test.
Click here to download the Physical presence test.
If you are determined to be tax resident of SA, you are obligated to declare your past and present foreign and local earnings made aboard the vessel and apply for exemption where possible. It is important to note the two tax exemptions that can be applied on foreign employment income for those working on vessels. You can obtain tax relief on your foreign earnings if either exemption can be claimed. Click below to learn more.
Should one not have any assets, in SA, nor be a tax resident, it will not be necessary to register for tax, however it will still be advisable to ensure your non-residency is formalised with the authorities. This is extremely important to mitigate risk with the amended expatriate tax law taking effect 1 March 2020.
Exemption 1: Section 10(1)(o)(i) of the Income Tax Act
10(1) There shall be exempt from normal tax—
(o) any form of remuneration—
(i) as defined in paragraph 1 of the Fourth Schedule, derived by any person as an officer or crew member of a ship engaged—
(aa) in the international transportation for reward of passengers or goods; or
(bb) in the prospecting, exploration or mining (including surveys and other work of a similar nature) for, or production of, any minerals (including natural oils) from the seabed outside the Republic, where such officer or crew member is employed on board such ship solely for purposes of the “passage” of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981), if such person was outside the Republic for a period or periods exceeding 183 full days in aggregate during the year of assessment.”
A quick look at the “section 10(1)(o)(i) exemption” requirements:
Income received must be for foreign employment aboard the vessel;
The vessel must be either carrying passengers/goods for reward;
The taxpayer must be part of the safe passage or navigation of the vessel; and:
The taxpayer must be outside of SA for more than 183 days for the year of assessment.
Should one not have any assets, in SA, nor be a tax resident, it will not be necessary to register for tax, however it will still be advisable to ensure your non-residency is formalised with the authorities. This is extremely important to mitigate risk with the amended expatriate tax law taking effect 1 March 2020.
Exemption 2: Section 10(1)(o)(ii) of the Income Tax Act
10(1) There shall be exempt from normal tax—
(o) any form of remuneration—
(ii) received by or accrued to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C in respect of services rendered outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic
(aa) for a period or periods exceeding 183 full days in aggregate during any period of 12 months; and
(bb) for a continuous period exceeding 60 full days during that period of 12 months,
and those services were rendered during that period or periods.
A quick look at the “section 10(1)(o)(ii) exemption” requirements:
Income received must be derived through foreign employment.
The taxpayer must be outside of SA for more than 183 days for the year of assessment.
The taxpayer must be outside of SA for a continuous period exceeding 60 days for that year of assessment.
Kindly note the exemptions has been amended to exempt only the first R1,25 million as of March 2020.
