If you are one of the many South Africans working abroad and not paying income tax on your foreign earnings in South Africa under the 183-day rules, read on…
If you are still a South African resident for income tax purposes, 1 March 2020 was an important day for you. As of this date, the “south africa expat tax” is in effect, whereby only the first R1.25m of your foreign earnings will be exempt. Previously all foreign earnings were exempt, provided the 183-day rule (and more) were satisfied. Initially set at R1m, this exemption was revised in the 2020 Budget and is now capped at R1.25m.
Under the new rule, all of your foreign earnings, including fringe benefits such as housing, education and flight allowances, will now be taxed under the individuals’ income tax tables for the year, and can go as high as 45%. For individuals working in tax-free geographies, such as Dubai, this will have significant implications for your pocket.
What options do you have if you are in this situation?
- Relocate back to South Africa
Shouldering a taxation burden in South Africa will reduce your foreign-earned disposable income and make it more difficult for you to sustain the lifestyle (both abroad and locally) that you have become accustomed to. Because of this impracticality, this is less of an option for most, in particular those that left in search of better opportunities.
- Financial emigration
The outcome of financial emigration is a change in your income tax status from “resident” to “non-resident” through a process with SARS and SARB. This is neither a simple nor an inexpensive process, however. Financial emigration requires that you pay CGT on your local assets. In addition, restrictions will be imposed on your remaining assets and any that you may wish to in future acquire in SA. Should you subsequently return to SA, SARS and SARB would view your return with suspicion.
- Establish tax-efficient structures
If neither option 1 nor 2 is for you, this may well be…
By establishing a tax efficient structure, you would be successful in limiting your liability and protecting your foreign income and assets. Possibilities include creating offshore entities in tax friendly jurisdictions or investment portfolios within international retirement plans. Whilst these structures would not eliminate all taxation payable under the new south africa expat tax rules, they would serve to minimise it. In addition, such plans are exempt from CGT on the initial capital investment, tax does not attach on interest earned and estate duty is optimized. Structures such as these tick boxes in succession planning, making them particularly interesting for expats.
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