Are you a South African national working abroad and currently worried, confused, or simply just concerned about #tax2020?
What is #tax2020?
Let’s give you some background: Before the change, all foreign employment income earned by South African tax residents were fully exempt from tax as long as they meet certain requirements. What were these requirements? Residents were required to meet the 183 and 60 full days requirements in order to qualify for the exemption. That meant: they needed to be out of the country for more than 183 days in a 12 month period.
Provided the “days” requirements were met and they were in an employment contract, no tax was due in SA.
What changed?
The new legislation that came into effect on 1 March 2020 is aimed at individual tax payers who are still tax residents in South Africa and are working abroad. The implication of the change is that South Africans will need to start declaring and possibly paying tax on foreign income. In other words: The change will result in foreign employment income being subject to tax in SA. However, not all income is subject to this tax. The first R1.25 million of is exempt. (Budget Speech February 2020 update: threshold has now been increased from R1 million to R1.25 million – article on the changes)
Although the statement “all South Africans working abroad should now pay tax” is in the headlines, it is not entirely true, as before, there are a few exceptions. If you meet the “days” requirement, the first R1 million (changed to R1.25 million February 2020) of foreign employment income earned by a tax resident will qualify for exemption with effect from years of assessment commencing on or after 1 March 2020. This means any foreign employment income earned under the R1.25 million will be exempt while everything earned over R1.25 million will be taxed in South Africa. The normal tax tables for the particular year of assessment will be applied.
Although this will be taxed in South Africa, most countries have a Double Tax Agreement with us, which means any tax you pay in the foreign country, will be a tax credit in SA.
It might even end up that your tax credit is more than the SA tax liability, then you will not pay tax in SA. If the tax credit is less than the tax liability in SA, you will pay the difference.
So, if you earn less than the equivalent of R1.25 million outside of South Africa, the legislation will have no tax impact on you. You will however still need to submit your tax return each year to declare the income under the correct code, which will then be exempt.
There are also a few other scenarios where the amendment will not affect you:
– Or you earn foreign investment income
– You are no longer a resident of SA for tax purposes
The following amounts fall within the scope of the exemption:
· Salary
· Taxable benefits
· Leave pay
· Wages
· Overtime pay
· Bonus
· Gratuity
· Commission
· Fees
· Emolument
· Allowance (including travel allowances, advances and reimbursements)
· Amounts derived from broad-based employee share plans
· Amounts received in respect of a share vesting
What options do you have if you earn over R1.25 million?
A Few options to consider are, Financial Emigration in some instances, breaking tax residency and keeping the double taxation agreement in mind.
What is Financial Emigration?
It is an exchange control matter that allows a South African, with the approval of the SA Reserve Bank, to be classified as a non-resident of the country. In other words:
Financial Emigration is the process whereby taxpayers change their status with the South African Reserve Bank (SARB) from resident to non-resident. It’s a process conducted purely for exchange control purposes, but which does not affect your citizenship status in any way.
Who can apply for Financial Emigration?
People regarded as South African residents for exchange control purposes; who are leaving the country to take up permanent residence in any country outside South Africa, Swaziland, Lesotho and Namibia; may apply for financial emigration.
A few other things to consider:
Many South African nationals working abroad may already be regarded as non-residents for tax purposes, even though a formal declaration was never made to SARS. South African nationals should be mindful that breaking tax residency in South Africa may result in an exit capital gains tax.
Is this for you?
Although Financial Emigration is a good option for some, it is important to note that it is not viable for all and that it will not resolve all issues around paying tax in South Africa. We strongly advise a personal review with one of our Mint staff for an accurate evaluation of your tax status and options. We will always do a tax analysis and discuss the best options for you.
Contact us on tax@mintaccounting.co.za for more information.