Several thousand South Africans are set to be impacted by new amendments to the Income Tax Act which will come into effect from 1 March 2020.
Currently, South African tax residents who render services outside the country on behalf of an employer for longer than 183 full days in any 12-month period can be granted an exemption on their income tax.
However, under the new rules set to be introduced in March, these South African will only receive a break on the first R1 million earned abroad. After this, you can be taxed according to South Africa’s own income tax system.
Speaking in an interview with CNBC Africa Tim Mertens, chairman of Sovereign Trust, said that while R1 million might seem like a high threshold, it is not much when considering the dollar ($67,936) or pound (£51,857) conversions.
He said that this amount will also include taxable fringe benefits such as housing, pension and travel allowances.
“(Taking these into account) it would seem that many people living overseas will be in excess of the amount and then be subject to South African tax.”
Mertens said that up to 100,000 South Africans live in Dubai alone and approximately 3,000 South African residents live in Hong Kong.
“There are South Africans working in all parts of the world such as Europe, Asia and elsewhere, so it is potentially quite a coup for SARS if they can tap into that tax base.
“It does mean that residents working really have to consider their tax affairs very carefully now.”
Understandably, some expats are aggrieved by this change.
Concerns have been raised that limiting this exemption may increase permanent emigrations from South Africa and have a negative impact on remittances to country, particularly for those with lower incomes working abroad.
National Treasury is, however, firm in its view that the R1 million threshold is already a compromise, and that from a policy perspective the abuse of the exemption by some expats unfairly benefitting from “double non-taxation” (i.e. not paying tax in either South Africa or the foreign country in which they work) must be stopped.