South Africa has confirmed that it is forging ahead with its plans to introduce an ‘expat tax' amendment to the South African Income Tax Act by March 2020.
At the moment, South Africans working abroad for more than 183 days (of which 60 days are consecutive) were able to earn income free of South African tax. However, with the amendment, South Africans will be required to pay tax in SA of up to 45% of their foreign employment income once it exceeds R1 million (approximately $75,000) per annum.
The proposed changes will affect any South African employees who are earning an income overseas, making over R1 million in the year of assessment.
Doing nothing certainly isn't advisable, so South Africans will need to assess their situation as soon as possible"
It will also impact companies that send employees overseas for work, who will have to deal with the new tax implications.
South Africans who have permanently left the country, who have not settled their tax affairs (through financial emigration) may also be subject to the changes, depending on their individual circumstances.
The tax changes could also impact people who are permanently living abroad, who currently qualify for exemption based on section 10(1)(o)(ii). These South Africans are typically not ordinarily resident in South Africa, but may have assets in the country, which could impact how SARS sees their tax affairs.
SARS has a set guideline - called the physical presence test - to determine whether a South African is resident, based on physical presence in the country.
"Doing nothing certainly isn't advisable, so South Africans will need to assess their situation as soon as possible," Bryony Oostingh, consultant at Sovereign Trust SA told local media. "Broadly there are three options available - moving back to South Africa, setting up a structure to limit your liability and protect your foreign income and assets, or financial emigration."
According to Sable International, financial emigration - being the legal process of cutting all tax ties to South Africa - may not be necessary to avoid the expat tax, provided you meet the right requirements.
If you are a non-resident (South African living abroad) and can prove to SARS you are ordinarily resident in the country you're living in, then the tax should not apply.
If you are in a dual-residency situation, SARS may have a DTA with the country you're living in that may make you exempt.
However, this is specific to each individual situation.