South Africa is seeing a sharp rise in the number of people choosing to emigrate financially in order to cease their tax residency with the country and avoid the expat tax.
South Africans living abroad now have to pay tax on anything above their first R1.25m made outside the country. 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 loss of revenue as a result of South Africans ceasing residency means that the expat tax has backfired even before it has become effective," according to attorneys at Tax Consulting SA Jonty Leon and Jean du Toit.
The loss of revenue as a result of South Africans ceasing residency means that the expat tax has backfired even before it has become effective"
The expat tax will affect South African tax residents who are outside the country for longer than 183 days during any 12-month period and a continuous minimum of over 60 days.
South Africans living in countries with no tax treaties with South Africa can claim from the South African Revenue Service where there has been double tax. However, for South Africans living with countries with no income tax, like the UAE, the expat tax will be a hefty blow.
As there has been a massive increase in South Africans ceasing residency to avoid the change in legislation, the government has taken notice. It has announced that it will remove some of the emigration formalities from an exchange control perspective, which will take effect from March 1, 2021.
These exchange control formalities will be replaced with an uncertain future regime, which leaves South Africans with 12 months of some semblance of certainty and to get their affairs in order before a new regime is put in place.
"The tide of South Africans making up their mind to "divorce" South Africa fiscally, formally letting the government know their intentions to leave the fiscal net, will probably not be affected by the Budget. To the contrary, it may accelerate the trend, as taxpayers have until March 1 next year to exit under a formalised dispensation," Leon and du Toit added.
South African expats fearing a tax crackdown are mostly flocking to apply for a second passport through golden visa schemes in Europe.