The tax implications of South African tax residents working on ships is dependent on a number of factors, mainly being whether the ship is foreign owned or South African owned. An explanation of the considerations for each of these is considered below.
For people who work as officers or crew members on a foreign owned ship, their income earned as a result of their work on the ship may be exempt from taxation in South Africa if certain circumstances are met. These are:
• The person must have been outside of South Africa for at least 183 full days in the tax year;
• The income earned as a result of work on the ship must have been paid as an employee, that is it cannot have been earned as an independent contractor or business owner on the ship; and
• The ship must be involved in the international transportation of passengers or goods for reward, for example, a cruise ship.
In an event where the taxpayer complies with the above requirements, but spends a portion of the tax year working on the ship in South African territorial waters, the full amount earned will still be exempt. This does not, however, apply to income earned other than working on the ship. That is, if a taxpayer works on a foreign ship but the ship is in South African waters for 50 days of the tax year, the full amount earned from working on the ship can still be exempt from taxation. However, if the taxpayer works in a shop in South Africa for the time he or she is not working on the ship, this will be subject to normal taxation.
South African Ship
There are slightly different considerations for people working on a South African ship. The main difference is that there is no 183 days out the country requirement. A taxpayer may, therefore, be working on a South African ship which is engaged in international shipping outside South African borders for a period of only three months; that income earned will be exempt from taxation in South Africa. The income must still be earned in the capacity of an employee and not an independent contractor.
For the purposes of these exemptions, South Africa is defined as the South African landmass plus its territorial waters (which encompasses roughly R22.2km past the landmass of the country).
Please note that there are different considerations for people working on foreign ships involved in prospecting, exploration or mining and South African ships that are involved in fishing.
Exempt income earned on ships should still be declared to SARS, along with proof that you have been working on a ship and have been out the country. These details will be submitted upon filing of your annual tax return, although the income won’t be subject to taxation.
These exemptions relating to ship income are not subject to the possible amendments currently being considered relating to other foreign earned income. Taxpayers that do not meet the requirements of the above exemptions may still, however, qualify for this exemption on foreign earned income.
• Daniel Baines is a tax consultant, legal adviser and the author of How to get a SARS refund.