The South African government is making a move towards changing its tax on remuneration earned outside South Africa – which could see some expats pay as much as 45% on earnings outside R1 million.<\/p>\n
According to\u00a0Tax Consulting SA,\u00a0National Treasury has invited key stakeholders to a workshop in March 2019 to address concerns around the planned regulations, which opens up the way for possible tweaking and changes ahead of the planned implementation date of March 2020.<\/p>\n
Industry experts believe that the changes are a certainty,<\/a><\/strong> even if the draft laws are changed in some way before implementation – and this has some expats worried, with confusion persisting over who the new laws will affect, and how.<\/p>\n Current laws<\/strong><\/p>\n Currently, South Africans who are earning income abroad are assessed in terms of residency.<\/p>\n In terms of section 10(1)(o)(ii) of the Income Tax Act<\/a><\/strong>, if you are working overseas and do not meet the physical presence requirements to be an ordinary resident in South Africa, you are exempt from tax on any foreign income.<\/p>\n To qualify for this exemption, an employee needs to have spent more than 183 full days (including a continuous period of more than 60 full days) outside of the country working, in any 12-month period.<\/p>\n If this requirement isn\u2019t met, then the employee is taxed on worldwide income.<\/p>\n Proposed changes<\/strong><\/p>\n Originally, the draft regulations\u00a0proposed the complete repeal of\u00a0section 10(1)(o)(ii) of the Income Tax Act – the section that deals directly with taxation on foreign remuneration.\u00a0<\/span><\/p>\n Under these conditions, all foreign income would have been taxed by SARS, and citizens\u00a0would have to claim a credit against South African tax payable for any foreign taxes paid on that foreign income.<\/span><\/p>\n The draft regulations were later softened<\/b><\/span><\/a> <\/b>to not be a complete repeal, but that section 10(1)(0)(ii) be changed so that only the first R1 million of foreign remuneration will remain exempt from tax in SA – even if an individual meets the requirements of exemption<\/b><\/span><\/a>.<\/span><\/p>\n One of the\u00a0main reasons given for the changes is to curb situations of double non-taxation –\u00a0being situations in which an individual\u2019s employment income is not subject to tax in either South Africa or in the foreign country where the services are rendered.<\/span><\/p>\n Who does it affect<\/b><\/span><\/p>\n The proposed changes will affect any South African employees who are earning an income overseas, making over R1 million in the year of assessment.<\/span><\/p>\n It will also impact companies that send employees overseas for work, who will have to deal with the new tax implications.<\/p>\n South Africans who have permanently left the country, who have not settled their tax affairs (through financial emigration) may also be subject to the changes, depending on their individual circumstances.<\/span><\/p>\n Young people, or anyone who is travelling and working abroad who qualify for exemption under section 10(1)(o)(ii) will remain exempt, provided they earn less than R1 million in the year.<\/strong><\/span><\/p>\n Non-residents<\/strong><\/p>\n The tax changes could also impact people who are permanently living abroad, who currently qualify for exemption based on section 10(1)(o)(ii). These South Africans are typically not ordinarily resident in South Africa, but may have assets in the country, which could impact how SARS sees their tax affairs.<\/p>\n SARS has a set guideline<\/a><\/strong> – called the physical presence test – to determine whether a South African is resident, based on\u00a0physical presence in the country.<\/span><\/p>\n This is for a period or periods exceeding:<\/span><\/p>\n “An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days<\/strong>, will not be regarded as a resident from the day on which that individual ceased to be physically present,” SARS said.<\/span><\/p>\n If an individual passes the physical presence test, they will be taxed on their worldwide income in South Africa.<\/span><\/p>\n What if you are living in two countries?<\/b><\/span><\/p>\n In situations where South Africans are split between two nations – working overseas for extended periods of time, but remaining an ordinary resident in South Africa – SARS has double taxation agreements (DTA) with certain countries to determine who has exclusive rights to your taxes.<\/span><\/p>\n “South Africa has DTAs with a number of other countries with a view to, amongst other things; prevent double taxation of income accruing to South African taxpayers from foreign sources, or of income accruing to foreign taxpayers from South African sources,” SARS said.<\/span><\/p>\n
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