What does the proposed tax law amendment mean for South Africans working abroad, and how will they survive it?
If you’re a South African working overseas right now, and you’re not waking up in the dead of night drenched in cold sweat and teetering on the edge of a full-blown nervous breakdown… Well, then you haven’t yet heard the news.A new Bill has come to darken your doorstep. They're proposing amendments to the tax laws which will remove tax exemption on South African expatriates. They’re saying it’s projected to take effect 1 March 2019.
How Do Things Work Right Now?
Currently, under Section 10 of the Income Tax Act, expatriates working abroad can claim an exemption from SARS on their income. They pay income tax only to the country in which they are employed. Of course, the sly among them have designed their dealings in such a way that they don’t pay tax anywhere at all. SARS frowns upon such hooliganistic behaviour.In terms of the residence-based taxation system, law dictates that South African tax residents working abroad for more than 183 days per annum (of which 60 must be consecutive) must disclose their world-wide income to SARS. They may then claim an exemption on their employment income earned beyond sunny South African borders. During the 2017 Budget Speech, the National Treasury called this exemption ‘excessively generous.’
Managing Partner of Tax Consulting, Jerry Botha, has said that the amendment law will repeal this tax exemption entirely. This means that any income South Africans earn overseas will become fully taxable. The only claimable relief will be for foreign taxes paid as well as to those who have paid, will be able to get tax credits. Naturally, a certain Revenue Service isn’t shy to kick ‘em while they’re down. They claim that gaining the credits won't be easy. There’s often a lengthy delay in receiving the benefit of the foreign tax credit. In the interim, you shoulder the cash flow burden of the double tax.The chief reason for this delay is the arduous requirement of confirming that the foreign tax was indeed paid to the foreign government. Such confirmation is often difficult to obtain. Tax systems vary and some Revenue Services simply, inexplicably, don’t provide any proof.Let’s say you’re on a marginal tax rate of 45% and you’re being taxed at a rate of 25% in a foreign country. SARS will now be collecting the difference of 20%.You can brag about living in tax-free-zone Dubai all you want. Depending on the tax bracket you would fall under back home, it will not save you when the South African Tax Man comes calling.
What Can You Do About It?
There are some courses expatriates may be able to take in order to avoid paying full tax, or paying double tax. Both to SARS and to the country in which they’re working.One option is to emigrate properly. This will trigger a disposal capital gains tax event (also called an Exit Charge). This will kick in if you have disposed of all your assets. There’s also the option of taxpayers expatriating in order to lessen their tax liability. The exit tax which has to be paid upon renunciation of citizenship could throw a spanner in the works. This exit tax (expatriation tax), treats the taxpayer as if they have sold all assets at fair market value the day before expatriation. For some people, this could result in a mammoth bill.Some expatriates have stated that with the proposed full tax on international employment income, doing a cost estimate and returning home may be their only option.So, is this a necessary step, in wrangling up all the stragglers who have been evading the clutches of the South African Revenue Service? Or have we just become so damn good at taxing everything that we simply can’t stop ourselves anymore.
A couple of months ago, Deputy CEO of AfriForum, Ernst Roets, tweeted a shocking statistic. Only 1,7 million South African citizens (3% of the population) pay 80% of all tax. If those statistics are even halfway accurate, 97% of the South African population do not contribute personal income tax at all.And in other news, 2018 tax increases include those on sugar and carbon, with VAT on petrol and diesel.