South Africans living and working abroad are bracing themselves ahead of the implementation of the amendments to the Income Tax Act which have been dubbed the expat tax.
South Africa’s National Treasury and the South African Revenue Service (SARS) announced major changes in the tax exemption on South African expatriates as far back as 2017, but the amended legislation takes effect from 1 March 2020.
South African Expat tax comes into effect in March
Under the amended legislation, South African tax residents working in other countries will only be exempt from paying tax on the first R1 million ($ 66,327) they earn abroad. Once an individual crosses the R1 million mark, they will be required by law to pay tax on all foreign earnings.
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South African tax residents who provide paid services outside of South Africa on behalf of an employer for longer than 183 days during a 12 month period will be granted an exemption.
Director at law firm Garlicke & Bousfield, Graeme Palmer explained that the exemption only applies if during the same 12 month period a person rendered services outside South Africa for a continuous period of at least 60 days.
“If this criterion is met the resident is exempt from income tax on such foreign income in South Africa,” Palmer is quoted by BusinessTech.
“The amendment now provides that a person who meets these requirements will only be exempt from income tax in South Africa up to the first R1 million of their employment income earned abroad.”
Palmer explains that the changes in legislation will only affect South African tax residents working abroad not former citizens or long-term expatriates who live and work abroad.
In other words, South Africans who have permanently moved abroad will not be subject to double tax. Such individuals will only need to pay tax in the country where they now live and work. For the law to apply a person would have to be present in South Africa for a certain amount of time through the tax year.
“It is important for expatriates to understand that the exemption only applies to South African tax residents working abroad,” Palmer said.
“These are persons who are still ordinarily resident in South Africa or have been physically present in South Africa for a statutory specified number of days each year over a five year period.
“Expatriates who have been living abroad for many years or who have emigrated are unlikely to be effected by this law. They will only pay tax in the country where they now live and are employed.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com