National Treasury confirmed in Parliament this week that the amendment designed to compel South African expatriates to pay tax will go ahead. However, the outcome will be vastly more beneficial than what was originally proposed.
The main changes announced by Treasury are:
• The first R1 million of foreign remuneration will be exempt from tax in South Africa if an individual is outside of the Republic for more than 183 days, as well as for a continuous period of longer than 60 days during a 12-month period.
The exemption threshold should reduce the impact of the amendment for lower- to middle-class South African tax residents who earn remuneration abroad. The exemption also means it is unlikely that South African tax residents in high-income-tax countries will have to pay any additional top-up payments to the South African Revenue Service (Sars).
• The effective date for the amendment has been extended to March 1, 2020 to allow individuals more time to adjust their employment contracts or their circumstances and to finalise or formalise their tax status.
A survey by Expatriate Petition Group participants, which was shared with Treasury by TaxConsulting SA, indicates that at least 60% of South Africans abroad will not pay any tax to Sars on their employment income. They will remain subject to tax in South Africa on interest, dividends, rental income and capital gains. On these other classes of income and gains, not linked to employment, the tax law is clear: they must be disclosed to Sars and taxed in South Africa.
Treasury and Sars note that there is widespread non-compliance on paying tax by South African expatriates. Many have not considered it necessary to submit tax returns in South Africa, or have submitted zero-tax returns, while some have even indicated that they are unemployed, even though they are earning employment income outside the country. These expatriates are at risk, and the clear message from Treasury and Sars is that they must get their affairs in order.
Also, many South Africans have left the country without formalising their affairs with Sars or the South African Reserve Bank. Treasury is softly cautioning them to do the right thing: “The formalisation of the tax residency status of South African tax residents who left the country many years ago is to be encouraged.”
The tax law change has not closed certain loopholes for tax planning, which Treasury and Sars have indicated they know about. At this stage, it is unclear whether this may be changed in future.
Jerry Botha is the managing partner at Tax Consulting SA.