South African seafarers, whose careers on cruise ships, geographical vessels or fishing vessels often take them across international waters, are currently experiencing a significant shift in how the South African Revenue Service (Sars) approaches their tax obligations. What was once a relatively straightforward process is now marked by intensified audits, refined questioning, and a request for meticulous documentation. 

This sends a clear message from Sars that tax exemptions for foreign employment income, particularly for seafarers, are under a magnifying glass and require diligence from taxpayers.

The Rise of Detailed Audits and Verification

Sars is no longer content with high-level declarations and wants to delve into exemptions claimed on returns. Where once a declaration might have been enough, audits are now going deeper and span over multiple tax years. 

In practice it is not uncommon to see audit requests for both compliant and non-compliant seafarers ranging from R19-million to R23-million in taxable income.

For some taxpayers, these audits start with Sars querying bank balances they have already requested and examined from third party financial institutions. They then request a clear explanation of the "source and nature of these funds" and whether the taxpayer has been "Tax compliant in this regard". Such comprehensive audits then require submitting all bank statements, local and/or foreign, along with detailed analyses of these accounts.

Refined Queries: Understanding the Seafarer Exemption in Detail

Seafarers claiming exemption under Section 10(1)(o)(i) of the Income Tax Act are facing far more targeted questions. Sars is asking for very specific proof that directly relates to the criteria set out in law. For example, taxpayers may now be asked for:

• Employer confirmation: A formal letter confirming employment outside South Africa, complete with arrival and departure schedules, duties performed, and income earned.
• Passport verification: Certified copies showing stamps that align with employer schedules.
• Ship registration details: Proof the vessel is correctly registered under the Ship Registration Act, with details of its operations outside South African waters.
• Proof of time offshore: Logbooks, passport entries, and employer letters confirming time spent beyond the Republic’s borders.
• Detailed income breakdown: A clear calculation of the amount claimed as exempt.

These requirements mirror Sars’s Interpretation Note, which clearly states that seafarers must apply the correct exemption. This could be either:

Crucially, taxpayers cannot mix and match these exemptions, as you must meet all the conditions of one category to qualify. If not, the fallback is the general expatriate exemption under Section 10(1)(o)(ii), capped at R1.25-million.

For example, a trawler transporting its own catch does not qualify as “transport for reward” under section 10(1)(o)(i)(aa). Likewise, an underwater welder would not qualify under section 10(1)(o)(i)(bb) because they are not employed solely for navigation.

The Paramount Importance of Supporting Evidence and Diligence

In terms of tax law in SA the burden of proving that an amount, transaction or event is exempt lies solely with the taxpayer. Failure to do so by the taxpayer can result in Sars issuing revised assessments, imposing understatement penalties, or even opening criminal cases for non-compliance. 

Sars also reserves the right to revisit past assessments if there is suspicion that exemptions were claimed incorrectly.

This means seafarers must not only keep meticulous records during each tax year but also ensure that all supporting documents align, from passport stamps to employer letters, vessel registrations and bank statements. Any inconsistency can bring your claim into question and risk penalisation.

The administrative burden of responding to these detailed audit and verification requests can be substantial. Given the complexities of interpreting and applying legislative provisions, especially concerning definitions like "outside the Republic", “safe passage” and "remuneration," as well as the significant financial risks involved, seafarers are strongly encouraged to seek guidance from qualified tax professionals or legal experts. These specialists can provide invaluable assistance in compiling the necessary evidence, accurately interpreting tax legislation, and effectively engaging with Sars to ensure compliant filing obligations are met and exemptions are validly claimed.

Written by Nicolas Botha, Tax Team Compliance & Processing Manager at Tax Consulting SA; and Courtney Cox, Tax Consultant at Tax Consulting SA