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Earning money overseas can come with an unexpected problem: paying more tax than the foreign country is entitled to charge.
Let's say your client, Naledi, is a Cape Town fashion designer who licenses her original designs to a clothing company in Thailand. The company uses her designs on clothing sold in Thailand and pays her R100,000 in royalties.
However, the company mistakenly deducts R25,000 in foreign tax, even though the tax treaty only allows it to deduct R15,000. This leaves Naledi R10,000 out of pocket, which SARS won't credit against her South African tax. To get her money back, she'll need to claim it from Thailand.
In its latest Guide on Mutual Agreement Procedures, published on 23 October 2026, SARS explains what taxpayers can do when too much tax is withheld overseas.
Here are six steps you can follow to help your clients claim the correct foreign tax rebate and recover any extra tax they've paid.
1. Confirm that the income is foreign-source
Before claiming a foreign tax rebate, check where your client's income comes from.
Section 6quat of the Income Tax Act 58 of 1962 sets out when foreign tax can be claimed as a rebate or deduction in South Africa. SARS explains these rules in its Interpretation Note 18.
For a rebate to apply, the income must come from a foreign source. Just because a company is based overseas doesn't mean the income is foreign-source.
Let's go back to Naledi. Under the tax treaty between South Africa and Thailand, royalties paid by a Thai company are generally treated as income from Thailand. This means her R100,000 in royalties can qualify as foreign-source income for the rebate.
However, the rules may be different for royalties received from other countries. If the income is considered South African-source, foreign tax paid on it won't qualify for the rebate, although a deduction may be available in some circumstances.
A deduction reduces the income she pays tax on, while a rebate directly reduces the tax she owes.
2. Check what the treaty allows
South Africa has tax treaties with other countries that limit how much tax they can charge on certain types of income, including royalties, dividends, and interest.
Before claiming a rebate, check the tax treaty between South Africa and the country your client earns income from. The amount of tax allowed depends on the type of income and whether your client meets the treaty's conditions.
As we’ve seen in Naledi's case, the tax treaty between South Africa and Thailand limits withholding tax on royalties to 15%. The treaty specifically covers payments for the use of designs, so her royalties fall within this category.
Because the Thai company deducted more than the treaty allows, the extra R10,000 can't qualify for a rebate in South Africa. Even if Naledi doesn't manage to recover this money, she can't claim it as a rebate or carry it forward to another tax year.
However, this is different from a situation where the foreign tax qualifies for a rebate but exceeds the amount SARS allows you to claim. We'll look at that limit in step 5.
3. Ask the foreign payer for a refund
If too much foreign tax has been deducted, your client must try to recover the extra amount from the other country. SARS won't refund it or include it in the South African tax rebate.
In Naledi's case, you should first contact the Thai company and ask why it deducted more tax than the treaty allows. You should also find out how she can claim back the extra R10,000.
The refund process differs between countries. Some require a refund application to their tax authority, while others require proof of tax residency before applying the lower treaty rate. Getting the correct documents in place can also prevent too much tax being deducted from future payments.
Keep copies of all correspondence and refund applications. If the company or foreign tax authority refuses the refund, you'll need these records for the next step.
4. Try MAP if the refund is refused
If the Thai company or tax authority refuses to refund Naledi's extra R10,000, she can ask SARS to help resolve the dispute through a mutual agreement procedure (MAP).
This allows SARS and Thailand's tax authority to discuss the problem and try to reach an agreement. Naledi won't take part in these discussions directly, but she'll need to provide the necessary information and supporting documents.
However, there are deadlines. Under the South Africa-Thailand tax treaty, Naledi has three years from when she's first notified of the tax treatment that breaches the treaty to submit her request. If she misses the deadline, SARS will reject it.
MAP also isn't available in every country. South Africa's tax treaties with Sierra Leone, Grenada, Malawi, and Zambia don't provide for this procedure. It's also unavailable when South Africa has no tax treaty with the other country.
In these cases, your client will need to pursue a refund through the foreign company or tax authority. Keep in mind that, even when MAP is available, there's no guarantee that the two countries will reach an agreement or that your client will recover the money.
5. Apply the South African limitation
Even when foreign tax qualifies for a rebate, SARS limits how much your client can claim. The rebate can't be more than the South African income tax payable on the foreign income.
Let's say Naledi's total taxable income for the 2026/27 tax year is R1m, including her R100,000 in royalties. Based on SARS's tax rates, her South African income tax comes to about R306,000 before personal tax rebates.
Since her royalties make up 10% of her taxable income, the maximum foreign tax rebate she can claim is about R30,600.
However, only R15,000 of Naledi's foreign tax qualifies for the rebate. Since this falls below the R30,600 limit, she can claim the full R15,000 against her South African tax.
But what happens if your client's qualifying foreign tax is higher than the limit SARS allows?
In some cases, the unused amount can be carried forward to a future tax year, subject to certain conditions. However, this only applies to qualifying foreign tax. The extra R10,000 deducted from Naledi's royalties doesn't qualify because it exceeds what the treaty allows.
These calculations are simplified to illustrate how the rebate works. Always use your client's actual taxable income and tax calculations when determining how much they can claim.
6. Keep a file that answers SARS’s questions
If SARS questions your client's rebate, you'll need to show where the income came from, how much foreign tax was deducted, and how you calculated the rebate.
In Naledi's case, you'll need records showing why only R15,000 of the R25,000 deducted qualifies for a rebate. You'll also need evidence of any attempts to recover the extra R10,000.
Your supporting documents should include:
Withholding tax certificates or receipts showing how much foreign tax was deducted
Foreign tax returns, assessments, and proof of payment, where applicable
Contracts and income statements showing where the income came from
Proof of tax residency and the relevant tax treaty provisions
Correspondence with the foreign company or tax authority about refunds
Calculations showing how you worked out the rebate, including currency conversions and any qualifying amounts carried forward
Make sure you have the necessary records before submitting the claim, as SARS may request additional evidence.
It's also important to record the income correctly. Naledi must declare the full R100,000 in royalties, even though she only received R75,000 after the foreign tax was deducted.
If you want to see more about this, have a look at our guide to withholding tax, which explains how to account for amounts withheld and why the full income must still be recorded.
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