Expat Tax was proposed in the Budget Review 2019 to take effect from March 2020.To date, South African tax residents who worked oversees for more than 183 days (of which 60 consecutive) were exempt from paying income tax on their foreign earnings.In the budget review of 2019 this was looked at again and it was decided the exemption would be removed for expats earning over a certain amount. The good news is, there are so options.Here are a few things to take note of with regards to expat tax:
1. The changes are not effective yet The first bit of good news is that expat tax is not effective yet and will only be from 1 March 2020. The changes to the foreign employment income tax exemption was proposed in the Budget Review of 2019 for the upcoming legislative cycle and will therefore only be actioned in 2020. However, if you are planning to make preparations for this incoming change, now is the time to do it.
2. Expat tax is strictly part of Income Tax legislation Expat tax will target earnings only as it’s an amendment to the Income Tax Act of 1962. Should your company provide you with benefits such as accommodation, a company car or other add-ons, these benefits will unfortunately be taken into account when calculating your tax liability.
3. You are exempt from expat tax for an annual income of below R1 million This might come as a relief to many young people who are working jobs abroad, but you are exempt from being taxed on your foreign income if it’s less than R1 million. “South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds R1 million,” Treasury says.
4. You won’t pay double tax thanks to Double Tax Agreements (DTAS) The purpose of Double Tax Agreements between two countries is to eliminate double taxation. This is good news because it ensures that South Africans who earn more than R 1 million from work abroad will still only pay a maximum tax rate of 45% – as they would have had they lived in SA.SARS will only have the rights to tax your income to the extent that it was not taxed by the other country’s tax administration. For example, if your effective income tax rate would have been 45% in South Africa and you’re taxed at 25% abroad, SARS can only tax your income at the remaining 20% to allow for your total effective income tax rate to be 45%.
5. Financial emigration is an option for expatsFinancial emigration requires the submission of a formal application to SARS and the SARB advising them of your intention to formally emigrate. Once your tax residency status has been changed to non-resident for tax purposes, you should not be taxed on your offshore income.For more detailed information, download our guide or speak to an advisor today.
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