Many South Africans living and working abroad are unaware that the amendment to the South African Income Tax Act No 58 of 1962 has been fully enacted and forms part of the Taxation Laws Amendment Bill of 2017. This new law comes into effect on the 1st of March 2020 and will require that South African tax residents abroad pay South African tax of up to 45% of their foreign employment income where it exceeds the R1 million threshold. Discover how these new tax laws will affect South Africans working abroad.
Currently Section 10 of the Income Tax Act, which deals specifically with the taxation of foreign income, states that South Africans temporarily abroad are exempt from tax on their foreign source income. Temporarily abroad is defined as someone who is outside South Africa for:
The South African Reserve Bank and the South African Revenue Service have jointly identified that there is an increase in South Africans seeking financial refuge in tax havens or using lower tax rates abroad to improve their income, while they are still tax residents of South Africa. The new law will only levy taxes on South Africans abroad on amounts exceeding R1 million in any tax year. If you earn in excess of R1 million and are, for instance, eligible for 45% income tax in South Africa and pay only 25% tax abroad, SARS will recover the additional 20% from you. If you are living in a country where you pay no tax, SARS will recover the entire 45% income tax from you.
Your tax residency is determined in most instances by double taxation agreements (DTAs) that exist between South Africa and other countries. These DTAs determine which country has the first right to tax you, which then establishes your tax residency.
If you are a tax resident in South Africa, you must declare your worldwide income and capital gains to the South African Revenue Service (SARS).
The most compliant way to protect your foreign income from South African tax if you have decided to live permanently abroad, is to consider financial emigration. Financial emigration is also known as formal emigration and means your status, for exchange control purposes with the South African Reserve Bank, changes from resident to non-resident. If you are able to prove that you reside offshore on a permanent basis, that your tax affairs from a South African point of view are active and up to date and that you do not have a criminal record, you qualify to lodge an application to SARB for the approval of your financial emigration.
It’s important to be aware that in 2017’s Parliamentary process, a caveat against last minute changes was noted: that someone who had been an expat for many years and who suddenly decides to emigrate before the 1 March 2020 date must expect their actions to be viewed with the necessary suspicion.
To avoid any unnecessary issues when the new tax laws for expats abroad come into effect, we recommend that you have your tax affairs with SARS fully up to date and legally compliant – this includes having your current tax status noted on the SARS system. For more information about how to handle South African tax on your income earned abroad, speak to GGD’s expert tax team today.