Everything you need to know about the South African Expat Tax

Published last week

South Africans working abroad will be required to pay taxes in their home country if their earnings exceed 1 million rand, around $ 75, 000 per year.

Proposed changes to the tax code were first announced in 2017. The South African Revenue Service (SARS) filed an amendment according to which South African residents living abroad would be required to pay up to 45% of their income above the one million rand threshold (approximately equal to US$70,000). So far, South Africans who spent more than 183 days abroad were not taxed within the country, but upon enforcement of the new law in March 2020, the 45% maximum threshold will come into effect irrespective of the amount of time spent locally – in effect, there will be a transition to an income-based criteria. A major complication is that nationals who have left the country without finalising their status with the tax authorities could be impacted by the legislation, knowingly or not. The SARS has set guidelines to determine residency status based on physical presence in the country.

The changes in legislation will primarily affect tax residents, and as a result, it is essential for South African nationals to ascertain their tax residency. If indeed they are resident in South Africa for tax purposes, then all worldwide income and capital gains need to be declared to SARS while taking into account any potential relief schemes that might apply. The situation is more straightforward for non-residents as the latter only need to disclose South African income and will be required to pay capital gains tax on fixed property within the country.

For those who are unsure about whether or not they will be affected by the tax changes, the first step should be to reach out to the SARS in order to complete a diagnostic. Once this audit is carried out, South Africans living abroad will be in a position to ascertain their residency status. Additionally, and if applicable, eligible citizens can become financial emigres – this largely reduces the level of disclosure required.

The tax amendments being proposed will significantly change the way in which returns are reported in South Africa. To make matters worse, penalties for non-compliance include the possibility of imprisonment for a period of up to two years. It is therefore advisable that South Africans confirm their tax residency status and in more complex cases, it is probably best to contact tax advisors in South Africa.

With tax evasion being a key priority for most governments around the world, the SARS has become increasingly aware of efforts made by taxpayers to dodge payments, either by not submitting returns or by voluntarily omitting income sources. The issue is made even more complex by the existence of double taxation agreements signed between South Africa and certain foreign states.

South Africa has one of the highest rates of emigration in the world. Dwindling economic prospects, political uncertainty and the poor recent economic performance of the South African economy have forced many to seek brighter futures abroad. For many years, debates about the commensurately lower tax receipts for the government have been part and parcel of populist manifestos and it is no surprise that the looming elections of May 2019 have rekindled the debate around expatriate taxes.