South African expats, get ready for tax amendments in 2020

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Many South Africans have, until now, preferred to work abroad due to tax privileges – especially in countries where they are exempt from paying employment income tax. Unfortunately, on 1 March 2020, this will change when new tax laws come into effect.

Currently, South African residents that work abroad for more than 183 days within a 12-month period including a period of 60, or more, consecutive days, are exempted from income tax on their foreign earnings under Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (ITA).

With the changes to this legislation taking effect in March 2020 however, it is only the first R1million of foreign remuneration (including allowances & fringe benefits) that will be exempt from taxation in South Africa. The requirement to spend more than 183 days, including the continuous period of 60 days, remains.

What will the amendment mean for South African expats?

The amendment will require South Africans working abroad to pay income tax in South Africa at marginal rates of up to 45% of their foreign income in excess of R1million. Taxpayers that pay income tax in the country that they work can qualify for the Section 6quat (1) rebate. Under this rebate, foreign income tax will be deducted from the South African taxable income.

The intention of the R1millon threshold is to reduce the impact of the income tax amendments on the lower- to middle class South African residents that earn an income abroad. This exemption will also mean that South African tax residents in high income tax countries will not be required to pay additional tax payments to the South African Revenue Service (SARS).

Pensions, annuities, or any lump sum received by a South African resident from a source outside of the country, as compensation for their past employment, will be exempt from South African tax.

The amendment will become effective from 1 March 2020, giving South African expats sufficient time to adjust their employment contracts or living circumstances should it be necessary.