If you are a South African tax resident working abroad in a country that does not tax you on domestic earnings, like the UAE and many other middle eastern states, you need to be aware that SARS is planning to tax you on those earnings. There are ways you can avoid paying South African tax on your foreign earnings and I strongly advise that you take a long hard look at your options before it’s too late.
The February Budget Speech made some far-reaching changes to how South Africans abroad will be taxed. The main exemption is the 183/60 day exemption found in section 10(1)(o)(ii) of the Income Tax Act (ITA).
What’s the impact of these new provisions?
Section 10 of the ITA exempts income for services rendered outside South Africa for periods exceeding 183 days in a 12-month period, of which at least 60 must be consecutive. This relates only to employment income and not other types of income such as rent, interest or investment income. It is also not available to self-employed persons or sub-contractors.
The historic position was that any employment income received or accrued during such absence from South Africa would be exempt from taxation in South Africa.
In terms of the residence-based system of taxation, South African residents are taxed on their worldwide income. However, the government, in the 2017-2018 budget, stated that this exemption on foreign employment income appears excessively generous.
If a resident works in a foreign country for more than 183 days with no tax payable in the foreign country, that foreign employment income will benefit from double non-taxation. It is proposed that this exemption be adjusted so that foreign employment income will only be exempt from tax if it is subject to tax in the foreign country.
SARS issued an Interpretation Note on 2 February 2017 on how such income is to be dealt with. In terms of this note, a number of South Africans working abroad may now find themselves subject to additional taxation.
What about your historical earnings?
If you complied with the existing legislation, you will not have any issues with SARS.
You should have filed your annual tax returns and declared your foreign exempt income. If you haven’t, this would need to be rectified.
Determine whether these new provisions will apply to you
The first port of call would be to determine your residency for South African tax purposes. This will give you certainty in terms of your position and your available options.
Whilst you may be outside South Africa for more than 183 days, even for a few years, you may still be regarded as being ordinarily resident in South Africa.
If your intention is to remain abroad, you may wish to consider formal emigration as opposed to a mere relocation.
How Sable International can help you
We can give you access to comprehensive advice on various aspects, including your residency status, financial emigration, investment structuring and other advisory services.
Our financial emigration and wealth teams can assist you in finalising your affairs with SARS, changing your resident status with SARB and structuring your investments in tax-efficient vehicles and investments, considering your current and intended future countries of residence.
If you choose to return to South Africa permanently at some point, we can assist in having your affairs structured in the most tax-efficient manner.
If you’re concerned about the new tax provision being put into force give our team a call on +44 (0) 20 7759 7519 (UK) or +27 21 657 1578 (SA). Alternatively, you can send our wealth team an email on email@example.com. Once we’ve had a chat we’ll be able to give you the advice you need to minimise your tax exposure and maximise your wealth.
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