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South African ‘Expat Tax’: what you need to know

1st March 2020. This is a date that all South African overseas workers should mark in their calendar.

Amendments to the Income Tax Act will change the way South African’s are taxed on foreign incomes. The changes are that significant, they even have their own trending hashtag – #TAX2020. The so-called ‘expat tax’ has created a lot of confusion for expats and rotational workers. A large amount of fear-mongering around financial emigration has only added to the confusion. The point of this article is to provide clarity. You should be aware that current tax laws and the imminent changes do not apply to residents, only South African tax residents. Determining if you are a resident can be tricky, so understanding the term ‘tax resident’ is a great place to start.  

South African tax residency explained

Even if you work overseas, you are probably still a South African tax resident. There are two methods used to determine your tax residency in South Africa.  

Physical presence

The physical presence test is made up of three parts, the requirements are: – Did you spend 91 days or more in South Africa during the tax year in question? – Did you spend 91 days or more in South Africa in each of the five tax years before the tax year in question? – In the last five tax years before the tax year in question, have spent 915 days or more in South Africa? You need to fail to meet all three requirements to prove that you are not a resident for tax purposes. It’s worth noting that spending more than 330 days outside of South Africa can supersede the physical presence test.  

Ordinary residency

This is where things get a little vague. There is no legal definition for the term ‘ordinary residence’ so it’s open to interpretation. The South African Revenue Service (SARS) will determine tax residency based on ordinary residence on a case-by-case basis. Some of the things that could classify you as an ordinary resident include: – Owning your own home in South Africa – Having family or other ties to South Africa – Evidence that shows that South Africa is where you return to after working abroad. This could be over several years This is by no means an in-depth look at tax residency, it’s just an overview to help you better understand how it works. The laws around tax residency can be complicated. It’s highly advised that you speak with a professional if you are unsure of your tax status.  

Current South African tax laws

South African tax residents are exempt from tax on all overseas income. This will remain the case until 29th February 2020. To qualify for tax exemption, you must: – Have spent 183 days or more living outside of South Africa over 12 months – Have spent a minimum of 60 days of the 183 outside of South Africa consecutively  You can claim a tax exemption on any amount under the current system, there is no limitation.  

New tax laws

From 1st March 2020, you can still qualify for tax exemption if you meet the requirements mentioned above. The significant change is the amount that will be exempt. Only the first R1 million (circa $70,000) you earn will be exempt from tax. Any earnings over this amount will be liable for tax in South Africa at your marginal rate – this can be up to 45%. This could have an enormous impact on those working overseas, especially in certain parts of the world. South African expats working in the UAE could go from paying 0% tax to 45% overnight.  

Taxable income types

All foreign employment income of over R1 million will be taxed in South Africa. Your salary might fall below the R1 million mark, but any additional perks that are included will be taken into account. SARS has an extensive list of what they consider to be income. Some of the most common types of income include: – Your basic salary – Taxable benefits – Leave/sickness pay – Income from overtime pay – Emolument (payment for work in the form of money or anything else of value) – Bonus – Gratuity – Commission – Allowances – this can include a car allowance, travel allowance etc – Any income from share vesting or employee share plans  

A word on double taxation

Double tax agreements between countries, prevent you from being taxed in your country of employment and your home country. You could be liable for tax in your country of employment and South Africa from March 2020. This could occur if South Africa doesn’t have a double tax agreement in place with your country of employment. You could also encounter the same problem if one is in place, but it does not provide sole taxing rights to one country. In this case, both countries would have a right to claim tax on your income. The portion of your income that exceeds R1 million would then be taxed in both countries.  

Be prepared

Incoming changes to the way South African’s are taxed at home and overseas could be significant. The impact they will have on you will depend on your personal circumstances. If you are a South African tax resident, now is the time to make sure you are prepared for the upcoming changes. If you have any concerns, or you would like more information, you can contact Holborn using the form below. Our experts can help you make sense of confusing legislation, and better understand the impact it will have on you and your finances.

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