Here’s what expats in South Africa need to know about the ‘expat tax’
South Africans who have moved abroad in search of a better life, beware! The tax man is coming after you! The ‘expat tax’ amendment to the South African Income Tax Act will be in full effect by March 2020. It targets expats who haven’t regularized their tax status, perhaps by simply ceasing to submit tax returns, or submitting zero-tax returns or stating unemployed on their returns. With nearly a million South Africans now living abroad, it’s looking like it’ll be a huge haul for SARS, which has already begun prosecuting tax non-compliance.
Currently, your income is SA tax free if you work abroad for more than 183 days a year (of which 60 days are consecutive). But in future you’ll be required to pay tax in SA of up to 45% of your income above R1 million (approximately $75,000) per annum. This may sound like a high threshold, but it includes benefits in addition to your salary such as housing, health insurance and flights.
SARS is also clamping down on tax evasion through offshore banking, via the OECD’s Common Reporting Standard. SA citizens or residents bank offshore will be reported to SARS, and this will be an audit trigger if your SARS profile isn’t correct.
Cost of living is already high in countries most popular with SA expats – UK, Australia, USA and the UAE. Although there’s no payroll tax here in the UAE, most of us are feeling the pain of creeping indirect taxes like VAT, housing fee, salik and the 16% service and tourism fee in hotel outlets (even though we’re residents). And it’s unlikely that expat packages will be increased to cover the new tax burden.
So what are your options, other than “catch me if you can”?
- Financial emigration – becoming a “non-resident” of SA, in terms of tax. You’ll be taxed on your earnings by the country where your income is sourced. Formal emigration can impose a lot of restrictions on assets remaining in SA, as well as assets that you might want to acquire in SA. It can also have significant capital gains tax implications. You’ll also continue to pay tax on all income generated within SA, such as rental income.
- The double tax agreement route – getting tax residency certificates. However, this is a repeat process every year, SARS doesn’t have to accept the tax position adopted and tax year timing differences when you the foreign country can often result in the exemption not being available.
- Set up legally compliant localized international structures to limit your liability and protect your foreign income and assets. However caution is advised, as some “products” are closer to tax evasion than tax avoidance.
The delayed effective date gives expats the opportunity to lobby Parliament and allows you to sort out your affairs with SARS in time. The prudent and fiscally conservative position remains to always have your tax affairs with SARS fully up to date and legally compliant – this includes having the correct tax status noted on the SARS system, in order to be determined a low or no-risk taxpayer. It’s been reported that expats who have been living abroad for some time, but only update their status just prior to the deadline, will be flagged. We advise a sooner-rather-than-later approach and are here to assist with your tax and financial planning.