National Treasury and the SARS officials on Wednesday 6th March 2019 confirmed that it is going ahead with its plans to implement an ‘expat tax’ amendment to the South African Income Tax Act by 1st March 2020.
Currently the South African Income Tax Act states that, South Africans working abroad for more than 183 days (of which 60 days are consecutive) were able to earn income which will not form part of their South African income for tax purposes.
According to the amendment, South Africans will be required to pay tax in South Africa of up to 45% of their foreign employment income once it exceeds R1 million per annum.
Stakeholder’s submissions regarding implementation issues were not well received by National Treasury and the SARS. National Treasury seems disinterested in the fact that the forex value of fringe benefits for travel and accommodation etc. offshore will inflate remuneration earned overseas to a point where the R1 million exclusion on taxpayer income, offered by the SARS, will have little to no effect on their tax liability.
Impact on the South African Economy
It is the view of many in the labour, tax and financial industries that this new law will severely affect many highly skilled self-employed South Africans, who currently work offshore and are bringing back millions of Rands in forex to our economy.
South African companies will now have to contract workers which are residents in that foreign country which will cost the company even more and the money the South African companies pay to foreign workers will be lost to the South African economy.
Possible solutions for expats?
These highly skilled South Africans will have to look seriously at a possibly emigrating financially as soon as possible, and who can blame them? If National Treasury continue as they are then the new expat law will cost them a fortune.
The expat exemption is only for South African’s who are tax residents, so therefore the would be to cease being a tax resident of South Africa, but it is not that simple, as there are many approaches, but by far the best would be to financially emigrate, provided it is done correctly.
Upon becoming a non-tax resident, any foreign earned income and foreign assets are protected against the SARS and will also protect against capital gains tax in South Africa, provided the asset sold is not a fixed property in South Africa.
Tax payers who cannot emigrate financially due to their factual circumstances, would be encouraged to start looking at double tax treaty and agreement protection, where applicable. There are also additional international localised structuring opportunities available for those who are not working in Double Tax Treaty Countries, but again we must caution that we have seen numerous “products” being punted which are closer to tax evasion versus tax avoidance.
For more information please contract Andrew or Mariska at 016 981 7226 / 083 391 1910 or email admin@aepinc.co.za
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)