South Africans working and living abroad are preparing for new amendments to the Income Tax Act, set to come into effect from 1 March 2020.
The amendments will effectively introduce an ‘expat tax', meaning that South African tax residents working internationally will only be exempt from paying tax on the first R1 million they earn abroad.
The rest of their earnings - including all fringe benefits, like housing, education and flight allowances - will now be taxed according to the normal tax tables for the year, which can go up to 45% in some cases.
The expat tax exemption has always been there, it is now just being capped"
"The expat tax exemption has always been there, it is now just being capped. This is because the intention was never to have South Africans working abroad not paying any tax at all. Yet this ended up being the case in certain places where no personal taxes are raised, like Dubai," Tim Mertens, chair of Sovereign Trust SA, told Fin24.
It is estimated that there are more than 100 000 South Africans in Dubai alone, many thousands of whom will be earning in excess of R1 million a year. There will be hundreds of thousands more scattered across the globe, a good percentage of whom will have to make a choice whether to emigrate or not.
For South Africans working in Saudi Arabia, housing and subsistence allowances are typically part of the total remuneration package, pushing many of them over the R1 million threshold.
This has led to concerns that some workers will be ‘double-taxed' by both the South African Revenue Service and the tax authorities where they currently work.
In an interview with 702 Jonty Leon, legal manager at Tax Consulting SA, said that a double-tax will depend on the situation of each individual and the current tax regime of the country where they work.
"In certain countries, we do have double-taxation agreements between South Africa and that foreign jurisdiction. In those instances - and you meet the requirements - you can ensure that you are not double-taxed," he said.
"In other countries, there is no such agreement and often there is a situation where there is a double-taxation issue."
Sharon MacHutchon, tax consultant at Mazars, advises that the amendment to the legislation that comes into effect on March 1 only affects income received as a result of employment.
It remains to be seen whether the changes will succeed in raising additional tax revenue. Some doubt it will make much difference to tax collections, yet the SA Revenue Service is confident it will rope in considerable new tax revenue.