As South Africa is set to introduce an expat tax, South Africans in the UAE face huge tax bills on end of contract gratuities that were free of income tax.
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 expat tax amendment to the South African Income Tax Act, to be introduced by March 2020, 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.
In the UAE employers pay an end of contract gratuity to workers. The amount paid depends on the length of service, but an expat ending a five year contract can expect a tax-free bonus of 21 days pay for each year of service.
Assuming the expat earns at least R1 million, the gratuity would be worth AED65,000 or R255,000, with tax due at 45%.
Tax would also be due on the ongoing salary and benefits package throughout the contract. South African expats will see the value of their contracts plunge as expensive cost of living in the UAE bites at their reduced incomes.