4 things you need to know about the new Expat Tax

The impending amendment to section 10 of the Income Tax Act, commonly referred to as the Expat Tax, has caused quite a lot of discussion and a fair amount of concern for many South Africans working abroad. Here’s what you need to know about it.

1. The Expat Tax explained

Currently, if a South African tax resident works abroad and is physically outside South Africa for more than 183 days (of which more than 60 days are consecutive during a 12-month period) the income earned in the foreign country during this period is exempt from tax in South Africa.

However, on the 1st of March 2020, section 10 of the Income Tax Act will be amended. The amendment will result in all registered South African taxpayers who are working abroad having to pay South African income tax on any earnings over the amount of R1 million per annum.

2. How the Expat Tax will affect South Africans working abroad

To date, many South Africans working overseas (particularly those in the Middle East) have enjoyed being exempt from tax in both their home country and the country in which they work. The amendments to the Income Tax Act mean that South Africans working overseas will now only be exempt from paying tax on the first R1 million. All other income, including benefits such as accommodation, education and travel allowances, will now be taxed according to the normal tax tables for the year. As a result, many high-income expats may stand to lose a significant amount of their income, with the possibility of paying a double tax too.

3. The Double Tax Agreement

The Double Tax Agreements states that South Africans who earn more than R 1 million from work abroad will not be taxed twice by the country in which they work and South Africa. However, SARS has stated that double taxation can occur if the double tax agreement between South Africa and the foreign country does not provide a sole taxing right to one country. In this case, both countries will have a right to tax the income, and the portion of the income in excess of R1 million may end up being taxed twice. Section 6quat of the Income Tax Act will however allow South Africans to claim back the tax paid in a foreign country as a credit in South Africa.

4. Financial emigration and the Expat Tax

Due to the impending tax amendment, many South Africans working abroad are considering financial emigration as a possible solution. Financial emigration is a formal emigration process that terminates your tax residency status with the South African Revenue Service (SARS). It also changes your status with the South African Reserve Bank (SARB) from resident to non-resident for exchange control and tax purposes. As a result, you would be exempt from any potential future tax on your foreign income. While this is an attractive option, it comes at a cost and is a fairly complicated process to undertake.

If you would like to know more about the Income Tax Act amendment, financial emigration or have another enquiry, get in touch with our friendly Client Services via email at enquiries@currencypartners.co.za or contact us for more information