“An income tax form is like a laundry list – either way you lose your shirt” (Comedian Fred Allen)
This article is important to you if you are either a South African working abroad or an employer of one. If you don’t fall into either of those categories, but know someone who does, please think of passing this on.
As an employee earning foreign remuneration (salary, leave pay, bonuses, allowances, commission etc), you currently enjoy an uncapped tax exemption (on that remuneration only, not on other foreign income) provided that you work overseas –
That however is set to change from 1 March 2020, when only the first R1m p.a. of your earnings will be exempt – you will pay tax on anything over that. With the Rand’s weakness showing little sign of abating, a lot of expats and their employers are going to be affected.
Are you a “tax resident”?
Only “tax residents” are affected, so the first thing you should establish is whether you are still a tax resident or not. That’s not always easy, so take professional advice in any doubt.
To illustrate some of the complexities involved, both physical emigration/relocation and “financial emigration” are different concepts to “tax emigration”. Moreover the Income Tax Act’s tests for tax residency are hardly a model of clarity – you are a “resident for tax purposes” if you are either an “ordinary resident” or a resident in terms of the “physical presence test” –
Under the physical presence test however if you are outside the country for a continuous period of at least 330 days you are not regarded as a tax resident.
Should you “tax emigrate”?
If you are indeed a tax resident, don’t think of changing that status without taking full advice. “Tax emigration” and “financial emigration” are complicated processes and full of pitfalls. For example you could be entitled to foreign tax rebates or other relief on your taxable (i.e. +R1m) foreign earnings, or there may be other benefits to remaining a tax resident. So it is important to have an expert look at your specific situation and determine what is best for you overall.
The big thing is to be aware that change is coming. Some long-range planning is the only way to be certain that there are no unpleasant surprises waiting to spring out on you down the line.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)