Treasury is going ahead with South Africa’s expat tax – and experts say it could be devastating
National Treasury on Wednesday (6 March) categorically confirmed that it is forging ahead with its plans to introduce an ‘expat tax’ amendment to the South African Income Tax Act by March 2020.
As it currently stands, South Africans working abroad for more than 183 days (of which 60 days are consecutive) were able to earn income free of South African tax.
Since the enactment of this amendment, South Africans will be required to pay tax in SA of up to 45% of their foreign employment income once it exceeds R1 million (approximately $75,000) per annum.
The new legislation has many expats riled up, with much confusion and uncertainty around the new laws, and many believing that it will not apply to them or that it will be unenforceable.
It has also brought into question whether young South Africans who are working abroad for a short time are tax compliant.
“Yesterday, National Treasury held a workshop to put SA expats out of their misery, although after the workshop it appears that misery is all that awaits them,” Tax Consulting SA said.
While Treasury had stated at the start of the workshop that it will only deal with administrative and implementation issues, attendees, again, raised policy concerns included in their submissions.
“At one point the National Treasury panel stated, in rebuttal to the amount of submissions brought before them, ‘make another three submissions, make nine, we will look at them but we take instructions from our political superiors’ – an eerie feeling that public concerns are not top of their agenda,” Tax Consulting SA said.
The devastating impact on the South African Economy
According to Tax Consulting SA, the impact of the amendment on the economy and workforce could arguably be more devastating than the effects felt by individuals.
“The reality is that with this amendment, any additional cost would ultimately have to be borne by the employer, as no expat would accept an assignment without these benefits and, to ensure that these assignments remain lucrative, the employer would have to increase the expat’s package,” it said.
It added that payroll personnel, SA expats and in fact SARS officials are in for many growing pains and an overall torrid time when the amendment kicks in.
“The only comfort, albeit cold, that was offered was that SARS will set up a dedicated head office function that would deal with matters pertaining to the amendment,” it said.
“The truth is, however, that neither Treasury nor SARS, who was also in attendance, had many answers to allay the fears of stakeholders.”
Financial emigration?
One attendee mentioned a very irate client of his who did financial emigration to Malta, believing financial emigration will completely absolve him from South African tax – where in reality Financial Emigration was clearly not the correct approach to follow based on his specific set of facts, said Tax Consulting SA.
“This is a prime example of someone who prima facie used an incorrect process to try to dodge taxes and in the process made fraudulent statements to SARS and SARB,” it said.
“One must wonder if SARS and SARB will, as they should, follow up with this advisor to look into the affairs of this taxpayer and others who may have also acted on incorrect advice and who have abused the Financial Emigration process.”
It added that the solutions to this amendment are now becoming very limited.
“The expat exemption only relates to South African’s who are tax resident, so the obvious answer would be to cease tax residency of South Africa,” it said.
“However, doing this isn’t as simple as one might think. There are different options when doing this, but by far the cleanest and most direct approach would be to financially emigrate, provided, as noted above, correctly done.
“Once one becomes a non-tax resident, their foreign earned income and their foreign assets are protected from the grips of SARS and this also gives protection against South African capital gains tax on most assets (you still have to pay Capital Gains Tax on South African fixed property when you sell) and protection against estate duty.”
For those who cannot Financially Emigrate due to their factual circumstances, you would now be encouraged to start looking at double tax treaty protection, where applicable, it said.
“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.”
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