Many South African expatriates are under the false impression that the amended Income Tax Act has not been formally been changed, and thus will not affect them.
The amendment comes into effect on 1 March 2020. South African residents working abroad, who fall into the 25% tax bracket in the country which they work in, most likely fall within the 45% tax bracket in South Africa – these workers will now have to pay the 20% difference to South Africa. Effectively, this applies to expatriates who earn more than R1-million.
The amendment was announced by former Minister of Finance, Pravin Gordhan, during the 2017 National Budget Speech.
Although the R1-million threshold seems generous, employment income does include allowances and fringe benefits paid to expatriates that are not considered “earnings”. The provision of housing, security and flights often form part of the the packages offered to South Africans as part of an enticement package to work in foreign locations. These benefits can add up to R1-million quickly, particularly in expensive countries that are popular among expatriates.
Some expatriates have began wrapping up their offshore work to return to South Africa to avoid the heavy taxes. Tax Consulting SA, leading specialists in expatriate tax, financial emigration, tax legalities, have received a large number of queries from expatriates regarding changes to their legal status and strategies that may be adopted to ensure they they do not compromise their previous tax-exempt status.
Many expatriates are also looking at financial emigration as an option to avoid the heavy taxes. The said expatriate must notify South African Revenue Services (Sars) and the South African Reserve Bank that he or she is no longer “ordinarily resident” in South Africa. This is the only way in which to formally have a status note changed.
The Barry Pretorius Expatriate Petition Group is supporting expatriates who have adopted the “wait and see” approach. The group is engaging with the National Treasury on having the rules of the amendment relaxed, and is also helping expatriates obtain tax-residency certificates as this is another way in which to achieve non-residency status.
Source: Jonty Leon