South African residents who work abroad as “yachties”—individuals employed on yachts—often face complex tax scenarios due to their foreign income. Understanding the specific tax exemptions and reliefs available to these individuals is essential for effective financial planning and compliance with South African tax laws. Many South Africans venture abroad to pursue careers in the highly lucrative yacht industry. Here they generate foreign exchange that can be income tax effective given the availability of three key exemptions for South African residents, at an overview:
First Seafarer Exemption |
Second Seafarer Exemption |
Expat Exemption |
|
Income Tax Act |
Section 10(1)(o)(i)(aa) |
Section 10(1)(o)(i)(bb) |
Section 10(1)(o)(ii) |
Applies to |
Officer or crew member aboard a vessel for foreign employment, including the international movement of passengers and goods for reward. |
Individuals who are part of the crew or officers on a ship that is involved in mineral prospecting, exploration, or mining, or the production of minerals from the seabed beyond the borders of South Africa. |
Individuals who earn employment income from foreign sources and fulfil the necessary criteria, as South African taxpayers. |
Eligibility |
Must meet employment requirements and the 183 days rule. |
Individuals who are employed as seafarers exclusively for ensuring the secure navigation or safe passage of the vessel. |
Must meet tax residency tests and the 183/60 days rule. |
Exemption Type |
Full exemption from tax in South Africa on foreign employment income earned. |
Full exemption from tax in South Africa on foreign employment income earned. |
Capped at R1.25 mil, excess taxable at individual marginal tax rate in South Africa. |
The first exemption to look at is either the First Seafarer Exemption or the Second Seafarer Exemption as this was specifically included for South African taxpayers who earn foreign income from working on ships or vessels. The key difference here is what the purpose for the ship or vessel is: transportation of passengers or mineral prospecting/mining/exploration. Since most “yachties” work on charter vessels that transport passengers, the First Sea Farer exemption is usually the one that applies to them.
First Seafarer Exemption:
The primary tax exemption for South African’s earning foreign income on a vessel is found under Section 10(1)(o)(i)(aa) of the Income Tax Act, 1962.
Eligibility Criteria:
- The foreign income must be for services rendered outside South Africa on a vessel that transport passengers across international waters:
- Most super yacht charters fall into this category
- The individual must be outside South Africa for more than 183 days during a tax year of assessment:
- They must be outside SA for 183 days in between the dates of March 20X1 – Feb 20X2.
Benefit:
Qualifying individuals are FULLY exempt from paying South African tax on their foreign employment income earned on vessels.
If you do not qualify for the above, then the next best tax efficient exemption is the Expat Exemption: This is the “general” tax relief option for South African residents who work outside the country.
Expat Exemption:
The primary tax exemption for South African residents earning foreign employment income in exchange for foreign services provided (not limited to the yachting industry) is found under Section 10(1)(o)(ii) of the Income Tax Act, 1962.
Eligibility Criteria:
- The individual must be a South African tax resident.
- Must pass the SA Residency Test
- The foreign income must be for services rendered outside South Africa.
- There must be an employer & employee relationship:
- Free lancers and independent contractors do not count.
- There must be an employer & employee relationship:
- The individual must be outside South Africa for more than 183 days in any 12-month period
- It is not restricted between the tax year of assessment months: March 20X1 – Feb 20X2.
- This period must include a continuous absence of at least 60 days from South Africa.
Benefit:
Qualifying individuals are PARTIALLY exempt from paying South African tax on their foreign employment income up to R1 250 000.
Practical Considerations for Yachties:
Documentation and Record-Keeping:
- Travel Documentation: Yachties must keep thorough records of their travel, including dates of departure and return, to verify the periods spent outside South Africa. Passport stamps are the best way to prove this. Keep all your passports both old and new safe.
- Employment Contracts and Income Proof: It is essential to maintain copies of employment contracts, pay slips, and proof of income earned abroad.
Professional Advice:
Tax Consultants: Given the intricate nature of international taxation and the specific conditions for exemptions, yachties should seek advice from tax professionals with expertise in maritime or expatriate taxation.
Monitoring Tax Law Changes:
Staying Informed: Tax regulations can change. Yachties should stay updated on any amendments to South African tax laws that could affect their tax situation.
Conclusion:
For South African residents working as yachties abroad, understanding and leveraging tax exemptions are crucial for minimizing tax liabilities. Proper documentation, professional tax advice, and staying informed about tax law changes are essential strategies for managing their tax obligations effectively. By doing so, yachties can optimize their financial outcomes while ensuring compliance with South African tax laws.
Need help?
At Watson Incorporated we pride ourselves in our up-to-date accounting and tax knowledge. Contact our offices for a consultation.
Disclaimer:
The material and information provided are for general information purposes only and should not be used for making business, legal, or tax decisions without consulting a professional. Tax laws change regularly, and any tax information may be outdated if referring to this article at a future date.
ARTICLE CREDITS
Written by Jamie Hadley-Grave CA(SA)
