Expat Tax on the Horizon for South Africans Living Abroad

If you’re a South African tax resident but you’re working abroad, note reports of the so-called “expat tax” coming into effect in South Africa from 1 March.

According to reports, the amendments to the Income Tax Act mean that South Africans working overseas will now only be exempt from paying tax on the first R1 million they earn elsewhere. Reportedly, the rest of their earnings – including all fringe benefits, like housing, education, and flight allowances – will now be taxed according to the normal tax tables for the year, which could go up to 45% in some cases.

Tim Mertens, chair of Sovereign Trust SA, reportedly told Fin24, “The expat tax exemption has always been there, it is now just being capped. This is because the intention was never to have South Africans working abroad not paying any tax at all. Yet this ended up being the case in certain places where no personal taxes are raised, like Dubai”

He continued, “It is not a sudden change to penalise South Africans working abroad. The SA Revenue Service is merely looking to see where it can find more revenue and the legislation was not intended to give exemption where you end up not paying tax in both your home country and the place where you are working abroad.”

He expects the impact will be particularly severe for the thousands of South Africans currently living and working in tax-free geographies, like most countries in the Middle East.

“Don’t just keep quiet and do nothing,” he advises.

Where does this leave expats?

Jonty Leon spoke to 702 and highlighted the options South African expats have.

According to his interview with 702, Jonty Leon, legal manager at Tax Consulting SA, said that “there are a number of ways around this change in legislation, but acknowledged that many workers are in a difficult situation where they will either have to move back home or cut financial ties with South Africa.”

He says, “South Africans are saying that they can’t afford this new amendment and have no other option to turn to South Africa. Unfortunately, one of the reasons they may have left South Africa is that they couldn’t find a job so they are in a bit of a catch-22 situation.”

Leon continued saying, “Other groups of South Africans are choosing to ‘financially emigrate’. To qualify for financial emigration you have to have the intention to permanently live and work outside of South Africa”.

“Financial emigration formalises your status as a non-resident for tax and exchange control purposes and as a non-resident, you are not taxable on that foreign income. We have seen a huge increase in South African following this route. Right now we are looking at between 6-9 months for this application to be processed and concluded by SARS.”

According to Leon, South Africans can also make use of tax-efficient structures to their advantage.

He says, “Another big (option) is making use of a double taxation agreement where there is one in place with the foreign jurisdiction. There are also certain requirements that need to be met for that. For instance, you have got to have one spouse living abroad and earning that income and the other spouse living in South Africa.”

Leon advised that using a double-taxation agreement is a good option for South Africans who cannot financially emigrate.