South Africa’s new expat tax and what it means for double taxation

South Africans working and living abroad are preparing themselves for the new amendments to the Income Tax Act, which are set to come into effect from March 2020.

Dubbed the ‘expat tax’, the amendments mean that South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

Graeme Palmer, a director at law firm Garlicke & Bousfield, explains that an exemption currently applies to South African tax residents who provide services outside South Africa on behalf of an employer for longer than 183 days during a 12 month period.

The exemption only applies if during the same 12 month period a person rendered services outside South Africa for a continuous period of at least 60 days, he said.

“If this criterion is met the resident is exempt from income tax on such foreign income in South Africa.

“The amendment now provides that a person who meets these requirements will only be exempt from income tax in South Africa up to the first R1 million of their employment income earned abroad.”

It is important for expatriates to understand that the exemption only applies to South African tax residents working abroad, Palmer said.

“These are persons who are still ordinarily resident in South Africa or have been physically present in South Africa for a statutory specified number of days each year over a five year period.

“Expatriates who have been living abroad for many years or who have emigrated are unlikely to be effected by this law. They will only pay tax in the country where they now live and are employed.”

Double-tax 

Palmer said that South African tax residents who are affected by the new law will not become liable for double taxation following the new amendment.

“If there is a tax treaty between the respective countries it will eliminate double taxation,” he said.

“If there is no tax treaty, there are provisions in the Income Tax Act that will allow the person to apply for a credit for the tax paid in the foreign country.”

Palmer said that SARS will only have the right to tax income to the extent that it was not taxed in the country where the employment services were performed.

“For example, if a South African resident employed in Botswana earns more than R1 million per annum, that person will be taxed in Botswana at 25% on such income.

“If that person falls within the highest tax bracket in South Africa (i.e. 45%), to the extent that such income exceeds R1 million, that person will be taxed in South Africa on such amount at 20%. (i.e., 45% – 25% = 20%),” Palmer said.


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South Africa’s new expat tax and what it means for double taxation