South African “expat” tax and you!

Posted by Nico Viljoen on 06 August 2018.

Nico Viljoen

MBA, Hons BCompt, HDip Tax (Jefferson School of Law USA), HED, AGA(SA) DBA Graduate Student, Business School Netherlands

The Tax Shop Head Office

More about Nico Viljoen

Nico obtained qualifications from various academic institutions and currently studies towards the DBA at the Business School Netherlands. He is an associate member of the South African Institute of Chartered Accountants. After completion of his articles with PWC, he lectured in the fields of taxation, accounting and auditing at the Vaal University of Technology. Thereafter, he occupied financial executive positions in the heavy engineering, chemical, transport and automotive industry. Nico has owned and managed various successful businesses over the 20 years. Nico has been a business mentor for various organisation and serves as an external moderator for taxation and internal auditing.

Currently, South Africans who work overseas must disclose all their income to SARS; however, they may then claim exemption on their employment income physically earned outside South Africa.

The issue for SARS was however that many South African residents on register as South African tax residents simply do not disclose their world-wide income, for instance those who just stop submitting tax returns, or who submit blank returns or returns that only show South African source income.

As a result of historical non-compliance of financial emigrants, the amendment to the South African Income Tax Act No. 58 of 1962 has been fully enacted and forms part of the Taxation Laws Amendment Bill of 2017. These changes come into effect on 1 March 2020, when foreign employment income will become fully taxable‚ and South African tax residents abroad will have to pay South African tax of up to 45% of their foreign employment income, where it exceeds the R1m threshold. The only relief for South African taxpayers may be to claim a foreign tax rebate against their South African income tax for any foreign taxes paid in any other country in respect of that remuneration.

Do you pass the ordinary residency or physical presence test? The new tax changes will only affect you if you are a resident, or deemed to be a resident, in South Africa.  South African tax residents must declare their world-wide income and capital gains to SARS. There are then certain tax reliefs you may claim, in terms of the 183/-60-day exemption test, which remains unchanged.

If you don’t fall within the ordinary residence test or the physical presence test, this amendment will not apply to you. Non-SA residents only need to disclose their South African source income and pay capital gains tax on South African fixed property.

Have you done a cost check? If you must pay full tax on your foreign employment income, coupled with high living and other costs, would it be more cost-effective to become an official financial emigrant or perhaps return to work in South Africa on a permanent basis? (Note that emigration is a deemed disposal capital gains tax event, which has its own tax implications.)

Are your international investments tax-efficient? If your home is South Africa and you have no intention of living abroad on a permanent basis, it is essential that you have a long-term tax strategy that will benefit you and your loved ones in the long run. With income tax, capital gains tax, estate duty and executors’ fees, you won’t benefit from just investing money into stock and shares or your Retirement Annuity back home.
Contact The Tax Shop and let us work with you to ensure a tax-efficient strategy.