South Africa’s expat tax is here – these are your options to legally deal with it

South Africans working and living abroad are preparing for new amendments to the Income Tax Act, set to come into effect from 1 March 2020.

The amendments will effectively introduce an ‘expat tax’, meaning that South African tax residents working internationally will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

This has led to concerns that some workers will be ‘double-taxed’ by both the South African Revenue Service and the tax authorities where they currently work.

In an interview with 702 Jonty Leon, legal manager at Tax Consulting SA, said that a double-tax will depend on the situation of each individual and the current tax regime of the country where they work.

“In certain countries, we do have double-taxation agreements between South Africa and that foreign jurisdiction. In those instances – and you meet the requirements – you can ensure that you are not double-taxed,” he said.

“In other countries, there is no such agreement and often there is a situation where there is a double-taxation issue.”

What are your options?

Leon said that there are a number of ways around this change in legislation, but acknowledged that many workers are in a difficult situation where they will either have to move back home, or cut financial ties with South Africa.

“South Africans are saying that they can’t afford this new amendment and have no other option to turn to South Africa.

“Unfortunately, one of the reasons they may have left South Africa is that they couldn’t find a job so they are in a bit of a catch-22 situation.”

Leon said that another group of South Africans are choosing to ‘financially emigrate’. To qualify for financial emigration you have to have the intention to permanently live and work outside of South Africa, he said.

“Financial emigration formalises your status as a non-resident for tax and exchange control purposes and as a non-resident, you are not taxable on that foreign income. We have seen a huge increase in South African following this route.

“Right now we are looking at between 6-9 months for this application to be processed and concluded by SARS.”

Leon said that South African can also make use of tax-efficient structures to their advantage.

“Another big (option) is making use of a double taxation agreement where there is one in place with the foreign jurisdiction.

“There are also certain requirements that need to be met for that. For instance, you have got to have one spouse living abroad and earning that income and the other spouse living in South Africa.”

Leon said that using a double-taxation agreement is a good option for South Africans who cannot financially emigrate.