When it comes to South Africa’s expat tax coming into force on 1 March 2020, it can seem like a complete minefield of information. There are so many different companies giving different advice, and people sharing personal experiences or opinions (many of which are just opinions and not actual facts!).
With the upcoming South African tax changes for South Africans living overseas, it’s more important than ever to make sure that you’re doing the right thing when it comes to your tax affairs in South Africa and Australia (or wherever in the world you live).
Here are some of the key things that you need to know about South Africa’s expat tax in 2020.
What Are The Proposed Tax Changes For South Africans Living Abroad?
South Africa’s expat tax from SARS are ultimately aimed at South Africans who are working in tax havens like Dubai and the UAE. Here, people pay no tax at all, and South Africa is looking to rectify this by making people pay tax to South Africa as their permanent home country.
Unfortunately, this new legislation doesn’t just affect South Africans living in tax havens. It affects you no matter where outside South Africa you are currently living.
The amendments to taxation of foreign income by SARS will see a 45% taxation imposed on all income acquired outside South African borders which exceeds the currently proposed R1-million cap.
The amendments have further clarified tests to determine tax residency for individuals who utilise Section 10(1)(o)(ii) of the Tax Act for tax relief. However, there has also been some confusion.
SARS and the Treasury have stated more recently that tax residency tests will be determined on a case-by-case basis and that the broad stipulations of the residency and physical presence tests can be vetoed by individual circumstances. They have also made it clear that financial emigration may fail if it is found that the financial emigration was merely a ruse to avoid taxation and that individuals had no actual intention of remaining abroad indefinitely.
Is South Africa’s Expat Tax Going To Affect Me?
Many South Africans aren’t particularly concerned with the new tax laws coming into force, believing that their salaries falling below R1-million per annum will prevent them from being affected. But “income” does not only mean your official salary.
In fact, SARS views certain perks, fringe benefits or incentives as part of your overall income. If your new employer has, for instance, provided housing, relocation costs, security and flights, these costs will form part of your “worldwide income”, as could additional benefits offered by your employer such as superannuation contributions, travel allowances, private healthcare, professional membership fees, tuition and so forth.
It would therefore be prudent to consider exactly how far from the R1 million threshold you really are and anticipate any imminent changes to your income which may push you over the line with SARS.
While it could take months or even years to see the full repercussions and implementation of the new tax laws, there are a few options available, depending on your personal circumstances.
What Are My Options?
There are a few options to consider, if you believe you may be affected by these new laws (i.e. if you earn over the R1 million cap).
Option 1 – Restructure your foreign income
This may seem like a ridiculous decision, but certain individuals may opt for salary or benefit cuts provided they have a comprehensive scope of their total income. If your salary and benefits puts your income above the R1 million threshold, you could opt for restructuring your income in such a way that it is less detrimental. This is, of course, a short-term solution.
Option 2 – Return to South Africa
Some South Africans are choosing to return home. This is especially true for individuals who have short-term contracts or work permits and those who had planned to return all along. Wrapping up your contract a bit earlier to dodge the expat tax bullet may be the right decision for certain individuals.
Option 3 – Wait it out
There are those who don’t believe that these laws will be implemented overnight and are adopting a ‘wait and see’ approach. You could just wait and see exactly how it all plays out before you decide to take a particular course of action.
Option 4 – Apply for a double taxation directive
Individuals who are abroad for longer term contracts and intend to one day return to South Africa can apply for directives under a double taxation agreement.
This is only applicable where South Africa has an agreement in place with the country where the individual resides/works. The directive is put in place to mitigate double taxation for individuals who operate under different jurisdictions.
Option 5 – Financial Emigration
Those South Africans who will be affected by the legislative changes and wish to stay abroad indefinitely could opt for financial emigration.
What Is Financial Emigration?
Financial emigration is the official process of deregistering as a tax resident of your former country of residence.
Completing financial emigration from South Africa DOES NOT affect your citizenship. It simply informs the relevant authorities that you are no longer liable for tax in South Africa. This is due to the fact that South Africa has a resident-based tax system and not a citizen-based tax system.
Once your financial emigration has been completed with South African Reserve Bank (SARB), your declared finances within South Africa will be managed by an authorised dealer via an emigrant capital (blocked rand) account. This account does not allow online access or card facilities for the account holder, but transfers and existing debit orders can be managed via the account if needed.
If you believe you may be affected by the upcoming South African expat tax in 2020, you can get in touch with me at Rand Rescue.
As the Australian representative for Rand Rescue, I’ve helped South Africans across the country complete financial emigration, not just to avoid any future tax liability in South Africa on their Australian income, but also to get their retirement annuities and other policies cashed in and transferred into dollars.
You can email me on email@example.com and I’d be happy to talk you through your options that might be relevant for your individual circumstances.
Want to read more on the new South African expat tax laws coming into force this year? Check out our Rand Rescue blog here.
You can also find out about some of the benefits of financial emigration on my blog.