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 been in the pipeline for almost two years, and it’s coming to darken your doorstep, no matter where in the world you’ve decided to hang your hat.
With the National Treasury and SARS desperate for money, they've proposed amendments to the tax laws which will impact South African expatriates in a big way.
The actual rules around this Expat Tax are yet to be finalised, but we know that they’re aiming to put it into effect in March 2020, and we know that it is inevitable.
Expats who have known about this for a while have become rightly hysterical about it, with so much confusion and uncertainty over who these new laws will apply to, how they will be enforced, and just how much money they’re set to pay the South African government.
Let’s take a look at what we know for certain so far, and what we can probably expect.
Currently, under Section 10 of the Income Tax Act, South Africans working abroad can claim an exemption from SARS on their international income, on the grounds that they are not currently living on South African soil and are not making use of any services. To do this, they have to fall short of the physical presence requirements to be considered an ordinary South African citizen.
During the 2017 Budget Speech, the National Treasury called this exemption ‘excessively generous.’
To qualify for this exemption, South African residents must be working abroad for more than 183 days per annum (of which 60 must be consecutive).
If this requirement isn’t met, you’ll be taxed on worldwide income.
However, in terms of the residence-based taxation system, law dictates that South African citizens working abroad, even if exempt from tax, must still disclose their worldwide income to SARS. Only then may they claim an exemption on this income earned.
The problem here comes in when these South African citizens don’t disclose anything at all, whether by choice or obliviousness.
Many South Africans of all ages who are currently working abroad have no idea that they’re unintentionally flouting South African tax laws, and could very well already owe SARS a ton of money.
SARS frowns upon such hooliganistic behaviour, and they plan on getting their money, one way or another.
Back when this amendment law was first announced, the idea was to repeal this tax exemption entirely, so that any income South Africans earn overseas will become fully taxable. This means that, essentially, you’ll be paying tax to the South African government, as well as the government of whichever country you’re staying and working in. It’s double tax.
The idea was that if you fall within the marginal tax rate of, say, 45% here in South Africa, but you’re being taxed at a rate of 25% in a foreign country, SARS will be demanding that difference of 20%.
Of course, in some cases, such as with Dubai, people may not be taxed at all. This means that they’re not paying tax anywhere in the world, to any country. The SA government doesn’t like that very much, and these amendments were intended to curb that double non-taxation.
The idea of repealing this exemption completely has since been scrapped, and there are now new amendments that are softer on many expats, but pretty harsh on skilled higher-earning individuals.
If you’re a South African citizen permanently living and working abroad, and you earn over R1 million a year (that’s currently around 5678.00 US dollars or 5076.00 euros a month) then it’s time to fasten your seatbelt, because things are going to get bumpy.
See, we can’t just board a plane to another country and go earn actual money and live happily ever after. As South African citizens, we’re obligated to inform SARS that we’ve emigrated from a tax point of view – financial emigration. This is to settle any tax affairs we may have had, and to let SARS know that we won’t be living or working in South Africa for quite a while.
Under the new amendments, if you plan on retaining South African citizenship but living in another country on a permanent basis, those who earn under R1 million a year (most likely youngsters or pensioners) will probably still be granted exemption. Those who earn over R1 million a year (most likely all the skilled workers who are running away from South Africa) may be taxed at a rate of 45% on anything earned over and above R1 million.
So, if you live in the UK and earn the equivalent of R2 million per year, for example, you’ll be exempt of the first million, and taxed 45% on the other million.
No matter where you are in the world.
Those who have made the permanent move, but have not followed the financial emigration procedure, will still be held liable for this tax.
Whether or not you own any assets in South Africa will also be taken into account. If you still retain South African citizenship, but you’re living abroad on a permanent basis, and you own assets in South Africa, then you’ll be subject to Capital Gains Tax.
Because the 45% on anything you earn over R1 million is seen as a tax on the wealthy, it’s almost guaranteed to be pushed through by our government, no matter how much it is challenged.
The biggest problem with this is that skilled South Africans, who are already leaving the country in droves, may have had intentions to come back at some point. Now that they’ll be taxed, and quite heftily, it may incentivise them to sell all of their assets, give up their South African citizenship, and just build a new life in another country, permanently, never to return.
After all, this will be the only way to avoid this hefty tax, and any double tax.
The general consensus is that the revenue collected through this tax is likely to be minuscule, while the overall message sent to skilled expats will be written in big, clear letters:
Give us your money, even though you don’t live here.
To play devil’s advocate, very briefly, it could be said that these expats may have benefitted from free or subsidised education, the little healthcare that there is, or used the country’s services while growing up here. And, everybody needs to pay their dues.
Those skilled workers may have left South Africa for a multitude of reasons, though, mostly beyond their control, and it’s perhaps better to incentivise their return than to incentivise their giving up on us altogether.